TOKYO, Feb 2, 2024 (AFP) – Shares in Japan’s Aozora Bank plunged for a second straight day Friday — wiping hundreds of millions of dollars off its market value — after the lender forecast a full-year net loss because of bad property loans in the United States.
Prices in the US commercial real estate market have fallen sharply on the back of rising borrowing costs and lower demand as more people work from home following the pandemic, prompting concerns about many banks’ exposure.
At the close in Tokyo, Aozora was down 15.91 percent at 2,150.0 yen, having dived 27.4 percent the previous day — slashing $870 million off its market capitalisation, according to Bloomberg.
The firm on Thursday reported a net loss of 14.7 billion yen ($100 million) for the nine months to December, and revised its full-year forecast to a 28 billion yen net loss, against its previous forecast of a 24 billion yen net profit.
“Due to higher US interest rates and a shift to remote work accelerated by Covid-19, the US office market continues to face adverse conditions combined with extremely low liquidity,” the bank said.
It has “reevaluated all US non-recourse office loans and reviewed property valuations from a forward-looking perspective”, it said, adding it set aside additional provisions for loans going sour.
“We thought office properties were the most stable,” said bank president Kei Tanikawa, who will step down on April 1. “It turned out they had the biggest impact.”
Known then as Nippon Credit Bank, Aozora was one of the highest-profile casualties when Japan’s property-fuelled economic bubble imploded in the early 1990s and had to be put under government ownership.
Other banks have also been caught up in the current commercial property slump, with New York Community Bancorp setting aside $522 million for loan losses, more than 10 times what analysts had estimated, Bloomberg said.
Banks and fund managers in South Korea are also exposed to a wave of bad loans tied to commercial real estate in the United States and Europe, it added.
Germany’s Deutsche Bank reported Thursday that it quadrupled provisions for losses in the sector during the fourth quarter from a year earlier.