The Bank of Italy published a note analysing collateralised commercial real estate (CRE) loans extended by Italian banks to non-financial corporations using granular AnaCredit data. The work examines how often banks update real estate collateral values and uses simulations to gauge how hypothetical property price declines could affect loan-to-value ratios and expected losses on banks’ CRE portfolios. The analysis finds that CRE collateral values are frequently revalued, although the pattern of revaluations is not fully aligned with movements in average market prices. Deviations are described as contained and potentially influenced by the fact that aggregate market prices do not fully reflect differences in real estate characteristics. The simulation exercises indicate that risks to the Italian banking system are generally contained under both baseline and adverse assumptions, with expected losses remaining moderate even under a sharp property price decline larger than those seen historically combined with a significant rise in borrower default probabilities.
Bank of Italy 2025-02-21
Bank of Italy publishes AnaCredit-based analysis of commercial real estate collateral valuation and finds risks generally contained
The Bank of Italy analyzed collateralised commercial real estate loans using AnaCredit data to assess collateral value updates and simulate property price impacts on loan-to-value ratios and expected losses. Findings show frequent revaluations of CRE collateral, though not fully aligned with market price movements, with risks to the banking system deemed contained even under adverse scenarios. Expected losses remain moderate despite potential sharp property price declines and increased borrower default probabilities.