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

Author

Listed:
  • 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))

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.

Suggested Citation

  • Márk Szenes & András Tomsics & Dávid Kutasi, 2017. "Risks of Commercial Real Estate Financing Based on the Experiences of Supervisory Reviews," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 16(1), pages 74-91.
    • Handle: RePEc:mnb:finrev:v:16:y:2017:i:1:p:74-91
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    File URL: http://english.hitelintezetiszemle.hu/letoltes/mark-szenes-andras-tomsics-david-kutasi.pdf
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    Citations

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    Cited by:

    1. Péter Fáykiss & Erzsébet-Judit Rariga & Márton Zsigó, 2019. "Portfolio Cleaning of Problem Project Loans in Hungary – Experiences Related to the Systemic Risk Buffer, as a Targeted Macroprudential Instrument," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 18(3), pages 52-82.

    More about this item

    Keywords

    real estate financing; economic cycles; risk management;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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