Citigroup says commercial real estate bigger issue now for banks

(Reuters) - Commercial real estate is becoming a bigger issue for U.S. banks after the Treasury decided that funds under the Troubled Asset Relief Program will not be used to buy troubled assets, Citigroup said.

Banks experiencing the highest delinquency/nonaccrual loan levels are Fifth Third Bancorp, Huntington Bancshares, National City, and Regions Financial, analyst Keith Horowitz wrote in a note to clients.

"Despite weakening fundamentals, we believe lack of major commercial real estate over supply, as seen in the late '80s and early '90's will help prevent the current credit cycle from being as severe as then," Horowitz, however, said.

Horowitz also said though lack of commercial mortgage backed securities issuance puts pressures on the banks, he does not see the size of CMBS maturing as unmanageable.

(Reporting by Sweta Singh in Bangalore; Editing by Deepak Kannan)