Bank examiners will be reviewing many Greater Des Moines banks’ loan portfolios with a finer-toothed comb this year.

Under new federal guidelines that were issued late last year, institutions with commercial real estate loans exceeding three times their equity capital will have to convince regulators that their portfolio isn’t too risky.

Thirteen of 26 banks of various sizes in Greater Des Moines had commercial loan portfolios that exceeded that threshold, based on a review by the Business Record of Sept. 30, 2006 call report data for those banks.

On Dec. 12, 2006, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System jointly issued “Guidance on Concentrations in Commercial Real Estate Lending: Sound Risk Management Practices.”

“It’s something that for national banks we’ve been looking at for a long time,”said Kevin Mukri, a spokesman for the Office of the Comptroller of the Currency in Washington, D.C.

Three decades ago, “when there were the most severe problems in banking, it was with commercial real estate lending,” he said.”So if you have a concentration, you have to make sure you have the additional risk management processes in place to manage that. How banks will do that will vary from bank to bank, but the examiners will go into the bank with that expectation.”

The new guidance, which applies equally to state-chartered banks, establishes two thresholds that bank examiners will consider when evaluating the riskiness of an institution’s commercial real estate lending policies.

Those thresholds call for greater scrutiny of banks whose:

or

John Sorensen, president of the Iowa Bankers Association, said he believes the guidelines are “very reasonable.”

“They make it clear these are nothing more than guidelines,”he said.”They are by no means a cap.They should not prevent banks that are active in the commercial real estate market to not be as active. Most of the banks I’m familiar with in Iowa (that are active in commercial real estate lending) have those safeguards in place.”

New regulations tend to make bankers a little apprehensive at first, said Darrell Hughes, president of Two Rivers Bank & Trust, whose bank exceeds one of the loan-to-capital thresholds by a small margin.”But from an overall view, I don’t think it’s going to change our business strategy at all,” he said.

“We’re going to continue to do the same type of commercial real estate lending that we do,” he said.”We already do almost all of the things the regs call for.We may have to tweak some of our policies and procedures a little bit, but as far as the type of underwriting we do now, the credit analysis, I don’t think it’s going to impact us.”

The intent of the guidelines is to more closely examine banks that are delving too deeply into speculative real estate loans, said Doug Bass, president of First American Bank.”We have very few of those,” he said.”Most of ours are custom, pre-sold loans.”

After a merger of its two state charters into one at the end of the year, his bank is just barely over one of the thresholds and below the other, he said. In Florida, where First American now has five branches, the regulation will have a lot more impact than it will in the Midwest or Iowa, because 80 to 90 percent of the loans in Florida are secured by real estate, Bass said.

There are many banks with high concentrations in various sectors, said the OCC’s Mukri, but with the experience to manage a high-concentration portfolio. Rural banks, for instance, often have a high concentration of agricultural loans,”but they have the talent and systems in place to monitor that kind of lending to make sure it’s not a problem,” he said.