After the US, Japan too... Bank Stocks Fluctuate Amid Real Estate Crisis

US New York Community Bancorp Down 38%
Aozora Bank of Japan Falls 21%
US Commercial Real Estate Crisis Becomes Visible

Following the plunge in shares of the U.S. regional bank New York Community Bancorp (NYCB), Japan's Aozora Bank also experienced a sharp decline in its stock price. Concerns are mounting over global banks exposed to the U.S. commercial real estate crisis.

According to a Bloomberg report on the 1st (local time), Aozora Bank announced that it expects a net loss of 28 billion yen (approximately 250 billion KRW), up from the previous forecast of 24 billion yen. After the announcement, the stock price fell more than 21%, closing at 2,557 yen.

Kei Tanikawa, President of Aozora Bank, had dismissed concerns about the bank’s liquidity crisis as recently as last November, stating that "Aozora has sufficient reserves for U.S. real estate loans."

Tomoiichiro Kubota, Senior Market Analyst at Matsui Securities, described the situation as "shocking," adding, "We thought the worst-case scenario was over because Aozora Bank had secured enough cash." He further analyzed, "Since Aozora took on particularly aggressive risks, it seems unlikely that other banks will be affected. Japan’s three major banks have appropriate risk control systems in place."

The U.S. commercial real estate market has been severely impacted as rising borrowing costs due to high interest rates have driven down property prices. Office real estate, in particular, has faced a crisis as tenant demand has declined due to increased remote work since the pandemic. According to real estate analytics firm Green Street, office property prices in the U.S. have dropped 25% over the past year.

A significant portion of Aozora Bank’s assets is exposed to overseas real estate loans, which has been cited as a cause for the stock price decline. More than one-third of its 4 trillion yen (approximately 37 trillion KRW) loan book consists of overseas real estate loans, with U.S. office loans amounting to $1.89 billion (approximately 2 trillion KRW) as of December.

Aozora Bank stated, "We are considering selling real estate assets held to secure additional reserves in preparation for a potential increase in companies filing for workout (corporate rehabilitation). Since our portfolio is centered on foreign bonds sensitive to rising U.S. interest rates, we will also accelerate the sale of securities we hold."

Meanwhile, a senior official from Japan’s Financial Services Agency said last month, "Considering the worsening real estate conditions in the U.S. and Europe, financial authorities will soon review banks’ exposure to real estate loans."