(Bloomberg) -- Japan’s Aozora Bank Ltd. became the second lender in a span of hours to surprise investors with losses tied to US commercial property, sending shares down by the limit and heightening concerns about global banks’ exposure to souring real estate bets.

The bank announced that it expects to post a net loss of 28 billion yen ($191 million) for the fiscal year, compared with its previous forecast of a 24 billion yen profit. Shares fell more than 21% to 2,557 yen in Tokyo.

Aozora’s woes echo the situation at another bank across the world, with New York Community Bancorp slashing its dividend and stockpiling reserves due to its exposure to the US office market. The pain is spreading. In South Korea, banks and asset managers are expecting a wave of bad loans in the coming months from an ill-starred splurge on overseas office blocks and local infrastructure. 

Still, as recently as November, Aozora President Kei Tanikawa said the bank would likely not need large additional reserves for its US property loans, signaling how some lenders may have underestimated the depth of that market downturn.

“It’s a shock,” said Tomoichiro Kubota, a senior market analyst at Matsui Securities Co. “The expectation was the worst was over and that the bank had set aside enough provisions.” 

The commercial real estate market in the US has been hit as rising borrowing costs pummel valuations. Office properties in particular have come under stress since the start of the pandemic when the rise in remote work chipped away at demand from tenants. Prices for offices in the US slumped 25% in the past 12 months through December, according to real estate analytics firm Green Street.

Aozora is known for relatively large exposure to overseas property loans in proportion to its balance sheet. Over one-third of its 4 trillion yen loan book is made up of overseas lending. Its US office loans stood at $1.89 billion as of December.

Other banks were unlikely to be affected, according to Matsui’s Kubota as Aozora had taken on more risk than competitors. Japan’s three largest banks have adequate risk control in place, he said. 

A senior official at Japan’s Financial Services Agency said in response to queries from Bloomberg News that the impact on major banks is limited since overseas property lending is about 3% of their loan book. The regulator continues to closely monitor the situation, added the official, who declined to be named. 

Toshinori Yashiki, deputy director-general at the FSA, had said last month that the regulator will examine banks’ exposure to property loans, given the worsening conditions of real estate markets in the US and Europe. That followed its warning in August about exposure to overseas commercial real estate.  

Aozora made an additional reserve of 32.4 billion yen against bad loans related to US office real estate in the third quarter. It said this will help prepare for a potential rise in the number of workouts, including debt collection through a sale of the underlying property assets. It may take another year or two for the market to stabilize, the bank said. 

Aozora also said it decided to accelerate the sale of securities given unrealized losses on its portfolio, consisting mainly of foreign bonds, primarily due to the rise in US interest rates.

The bank will brief reporters on its earnings at 5 p.m. local time on Thursday. 

Aozora also said CEO Tanikawa will step down and be succeeded by Deputy President Hideto Oomi, with the change effective on April 1. The lender is Japan’s 16th biggest bank by market value, according to data compiled by Bloomberg. 

--With assistance from Katherine Chiglinsky and Nao Sano.

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