Banks face mounting losses in commercial property: BIS

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The body grouping central banks around the world warned on Monday that banks are still worryingly exposed to risks such as falling commercial property prices which are likely to dent their earnings.

"Despite the improvement in banks' balance sheets, several factors raise doubts about the sustainability of bank profits," said the Bank for International Settlements (BIS) in its annual report.

The so-called central bank for central bankers noted in particular that "there is growing evidence that further losses can be expected from exposure to the commercial real estate sector."

Commercial property values in the United States have plunged by a third from their peak and rates of overdue loan payments have risen to more than eight percent, said the Basel-based bank.

In European countries like Ireland and Britain, commercial property prices have also plummeted by up to 46 percent from their peak.

"Losses on European bank balance sheets are expected to mount over the next few years," it said, noting that some banks have in fact been rolling over loans rather than inducing foreclosures, a move that is delaying recognition of losses.

Beyond losses in commercial properties, some banks are also highly exposed to sovereign debt risks, said the BIS.

At the same time, with governments also having significant borrowing needs, the BIS said banks may find it tougher to obtain refinancing.

Many international banks including Citigroup, UBS and Royal Bank of Scotland suffered from massive writedowns and losses during the financial crisis as their bets on the subprime private home loan market soured.

By April 2010, losses or writedowns reported by banks reached 1.306 trillion dollars, the BIS said.

But new capital injected -- mostly by governments through special rescue funds -- almost matched these losses, reaching 1.236 trillion dollars.

The BIS groups more than 54 central banks.

© 2010 AFP

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