This note presents an analysis of collateralized CRE loans extended by Italian banks to non-financial corporations, using the granular information reported in AnaCredit. First, it provides insights into how frequently banks update real estate collateral values, by comparing their reported valuations over time with changes in market prices. It then proposes simple simulation exercises to assess the impact of hypothetical declines in collateral prices on loan-to-value ratios and on expected losses on banks' CRE portfolios.
The findings of the analysis indicate that the value of real estate collateral for CRE loans is frequently revalued. While the revaluations do not seem to be fully in line with changes in average market prices, deviations are contained and might be influenced by the fact that aggregate market prices do not fully capture the heterogeneity of real estate characteristics. The results of the simulations show that the risks for the Italian banking system associated with both baseline and (various) adverse assumptions for real estate price developments are generally contained. Indeed, the increase in expected losses on CRE loans would remain moderate even in case of a sharp decline in property prices (larger than that observed historically) and a significant increase in the probability of default of the non-financial firms to which the collateralized CRE loans have been extended.
