Real Estate Unlikely a Systemic Problem for Banks, PNC CEO Says

Article originally posted on HERE on March 22, 2024

Troubled commercial real estate debt could lead to problems for some small lenders, but isn’t likely to be an issue for the broader US banking industry, said William Demchak, chief executive officer of PNC Financial Services Group Inc.

Demchak, who leads one of the biggest US banks by assets, said that smaller financial firms tend to have higher concentrations in real estate than larger lenders. And their lending focus tends to be on older Class B and C properties, he said in a Bloomberg Television interview Friday.

“Which is kind of the area that’s going to get hit the most in a higher-rate environment with increased office vacancies,” Demchak said. “But it’s not a systemic problem for the banking industry — not for any of the names you’d otherwise know. And we’ll make our way through it.”

Earlier this week, Bank of America Corp. CEO Brian Moynihan described commercial real estate as a “slow burn” for the industry. For Pittsburgh-based PNC, office properties account for just a small portion of the bank’s total loans, Demchak said. Within such financing, the biggest concern is over buildings with multiple tenants.

“We expect problems there, and we’re reserved at quite a high level against it,” he said. “Thus far, as we cycled through these projects that go nonperforming. We’ve actually been conservative in what we’ve been reserving.”

The lender, with more than $500 billion of assets, recently launched an ad campaign bragging about being “boring.” Last month, the bank announced it would spend about $1 billion to open new branches and renovate others through 2028.