Number Of Risky Loans Concerns Fdic Official Hove Sounds Early Warning On Bank Lending Standards

In an early warning, a top regulator said last week that some banks are increasingly making risky loans for commercial real estate and construction projects.

Pointing to a new report on banks’ lending standards, Andrew C. Hove Jr., chairman of the Federal Deposit Insurance Corp., said, “Currently there’s no cause for alarm, but our results show that certain (lending) practices … should continue to be monitored carefully.”

Compared with the previous such report issued in May, the new FDIC survey showed more banks that are active in commercial real estate and construction lending making higher-risk loans in those areas. Of the 398 banks examined that were actively making construction loans, for example, nearly 25 percent frequently financed what are considered speculative construction projects, up from 18 percent in the May report.

The FDIC defines speculative construction projects as those in which the developers receiving the loans have no commitments for the sale or lease of the property.

A banking industry economist however, discounted the risk.

“Regulators are paid to worry and they do a very good job at it,” said James Chessen, chief economist of the American Bankers Association.

The new FDIC report showed that about 6 percent of the 1,233 banks examined tightened their lending standards while 4 percent loosened them.