Risks of Commercial Real Estate Financing Based on the Experiences of Supervisory Reviews

Márk Szenes (), András Tomsics () and Dávid Kutasi ()
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Márk Szenes: Magyar Nemzeti Bank (Central Bank of Hungary)
András Tomsics: Magyar Nemzeti Bank (Central Bank of Hungary)
Dávid Kutasi: Magyar Nemzeti Bank (Central Bank of Hungary)

Financial and Economic Review, 2017, vol. 16, issue 1, 74–91

Abstract: Following the global economic crisis, project financing and as part of it, commercial real estate financing came into the limelight for both the international and Hungarian banking system. One of the underlying reasons of this phenomenon is that banks suffered their biggest losses due to the concentration of real estate portfolios, while real estate portfolios always represent outstandingly high credit risk as economic cycles exert a strong impact on the value and the income-generating capacity of commercial real estate projects. Based on the experiences of the supervisory reviews conducted by the MNB at large Hungarian banking groups, this study presents the risks associated with commercial real estate financing, the challenges identified with respect to the measurement of risk, and in this context, the challenges related to the calculation of capital requirements, and among others, the issue of cyclicality and the possible solution direction.

Keywords: real estate financing; economic cycles; risk management (search for similar items in EconPapers)
JEL-codes: G32 G33 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mnb:finrev:v:16:y:2017:i:1:p:74-91

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