A U.S. Federal Reserve report found that banks in the country are slow to take losses on their commercial real estate loans that have been hit by slumping property values and rental payments, the Wall Street Journal said. Citing a Sept 29 presentation made by Fed analyst K.C. Conway to banking regulators, the paper said the report's remarks suggested that regulators were preparing for a rerun of housing-related losses that plagued many banks after the residential property bubble burst.
Conway is a senior real estate analyst at the Federal Reserve Bank of Atlanta. The Journal said a Fed official had confirmed the authenticity of the document, but added it did not represent the central bank's formal opinion.
Conway's report predicted that commercial real-estate losses would reach roughly 45 percent next year, the Journal said.
According to the paper, the report said that the most toxic loans on bank books were interest-only loans, which get no benefit from amortization, since it requires borrowers to repay interest but no principal.
The Journal said the report also stated that banks have been slow to absorb the losses on their loans, partly due to capital preservation concerns.
A spokesman for the Federal Reserve did not immediately reply to a Reuters email seeking comment that was sent outside regular U.S. business hours. (Reporting by Biswarup Gooptu in Bangalore; Editing by Kim Coghill)