The other broker report of note this week came from GSJB Were, which has been closely following developments in the Australian commercial property sector. Weres believes the sector is now about half way through a 20 to 25 per cent correction in property values. Highly leveraged real estate investment trusts have been forced to dump property into a falling market in the scramble to reduce excessive leverage.
Weres estimates the Australian banking sector's exposure to commercial property totals around $180 billion. As to how much the banks actually lose on falling property values will depend on how willing they are to nurse borrowers through with loan renegotiations. The good news is the analysts are forecasting losses of only $4 to $6 billion for the banks, which fits within existing forecasts. (Weres last week lifted its Underweight rating on the sector).
The bad news is that loan renegotiations, for the purpose of not losing too much on existing loans, mean that the banks will be less open to lending on new loans, "perhaps for years". In terms of expected losses, NAB stands out in the sector as having the highest commercial property exposure, both domestically and offshore, REIT and non-REIT, as a percentage of its loan book, Weres notes.
In absolute terms, the bank with the highest commercial property exposure is Suncorp-Metway the analysts point out, and most of that is in Queensland.
20090717 Bank Update
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