Photo by Matthew G. Bisanz | CC BY-SA 3.0

Community banks loaded up on office loans, lines of credit to nonbank mortgage lenders and cyberattacks across the banking industry are some of the top risks bankers need to be watching, the FDIC said.

In its annual report on risks facing the American banking system the regulator, which provides deposit insurance but also oversees state-chartered banks that aren’t part of the Federal Reserve system, also highlighted deposit outflows and “high levels” of unrealized losses in banks’ securities portfolios and exposure to crypto-related assets.

Community banks appear to bear an outsized exposure to risk from commercial real estate loans gone bad, the agency said, with 28 percent of CRE loans on their balance sheets, compared to 15 percent of all loans. And 30 percent of the nation’s banks have CRE loans on their books exceeding 300 percent of tier 1 capital and credit loss reserves, with the highest levels of this kind of concentration seen in banks based in the West and Northeast.

Still, the FDIC noted that all major commercial real estate asset classes still appear to have “sound fundamentals,” with only office loans raising serious flags as occupancy has dropped in major urban centers and national office rents have stagnated at pre-pandemic levels.

And while the national median past-due rate on bank commercial real estate loans was only 0.19 percent in banks with concentrated exposure to CRE loans as of the first quarter of this year, the FDIC said, “the outlook remains uncertain.”

“Higher interest rates and the prospect for weaker economic conditions may stress bank CRE portfolios and constrain loan growth,” the FDIC report said. “Even absent further economic slowdown, some [office-sector] borrowers may face potentially higher interest rates and debt servicing costs or encounter other challenges refinancing. Amid these evolving challenges for banks and their borrowers, strong risk-management practices are essential for operating sound CRE lending programs.”