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can concentration of real state loans hurt a bank ?

can concentration of real state loans hurt a bank ?
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Answer #1

Can concentration of real estate loans hurt a bank ?

Yes, a concentration of real estate loans hurt the bank. Concentrated real estate loans imply that all the properties are constructed in a specific area and they belong to a very small group of customers.

During bad times, if the customers are not able to repay the loan, then the bank faces a significant amount of concentrated risk because it has no other source of income flowing from loans.

It becomes even more difficult for the banks to sell the property due to the fact that they are all loacated in the same area.

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