Collapse of Silicon Valley Bank (SVB): A Threat to the Global Real Estate Lending

ESV Emmanuel Chinedu Ezeama,

The banking sector, all over the World plays a very important role in the overall economic growth and development of any economy. In all sectors of the economy, they support capital flow for the execution of many projects. Their critical role of financial intermediation, through the mobilization of capital from the surplus unit to the deficit unit of the economy is what keeps businesses alive and up-and-doing.

One of the sectors that depends heavily on bank loans for the execution of projects, especially capital-intensive projects is the real estate sector both in the developed and Less Developed Countries (LDCS). Any hurt in the banking sector is automatically a challenge for the rest sectors of the economy, including the real estate space. The recent collapse of one of the World’s leading commercial banks – Silicon Valley Bank (SVB), is one collapse that is currently affecting lending to the global real estate industry.

SVB has been a star performer in the recent years, growing its asset base during the covid-19 to $12 billion and some of these assets are domiciled in real estate.  The collapse of the hitherto super bank in the American economy has hurt real estate lending. Lending to real estate has turned unattractive and risky, leaving the American real estate sector to suffer some setbacks. As a state chartered commercial bank, the SVB was doing well in both private and commercial real estate lending.  Before its collapse in March, 2023, the SVB held about $8.3 billion worth of active loans secured by personal residence mortgages at the end of 2022, and another $138 million linked to home equity creditors.  Also, the bank’s commercial real estate loans were put at $2. 6 billion

By the foregoing figures and scenario, the SVB was a big-time catalyst in the American real estate space which could have a direct and indirect impact on the real estate activities in other parts of the World.

Thankfully, the American government through its many agencies like the Federal Deposit Insurance Corporation (FDIC), other commercial banks have come to the rescue of depositors, investors, and former customers of the failed bank.  But this is not to say that the shock of the bank failure will not affect real estate lending in America and the rest of the World.
Globally, the real estate sector, the economies of the World generally could be better protected from bank failures when the issue of ethics and corporate governance are taken seriously at all levels of banking business.

The regulatory institutions and frameworks put in place in this regard should be strengthened. The global incessant collapse of both the small and big banks does not augur well for the business community including the all-important real estate sector.
ESV Emmanuel Chinedu Ezeama, a Registered Estate Surveyor and Valuer is the Principal/Managing Partner of Emma Ezeama & Co, a leading firm of estate surveyors and valuers, he sent in this piece from Lagos, Nigeria.