WASHINGTON (Reuters) - U.S. banks with significant lending exposure to some multi-family properties and particularly rent-controlled housing are vulnerable to posting losses this year on rising costs facing landlords, according to Fitch Ratings analysts.

On a Wednesday call, Fitch Ratings analysts highlighted the risks facing banks which have underwritten loans behind apartment complexes and other multifamily properties.

Lending by banks to multifamily borrowers grew 32% since 2020 to $613 billion at the end of 2023, according to a March 19 report by Fitch.

But supply has begun to outstrip demand, creating downward pressure on the rents landlords can charge, Fitch noted during Wednesday's call. These landlords also face rising interest rates and insurance premiums, coupled with decreasing apartment values.

These factors have weighed on several regional banks with high exposure to the asset class, and in particular those most exposed to rent-controlled multifamily loans, where landlords face a ceiling on rent increases to offset rising costs.

"Especially in the more stringent rent-controlled areas, there is a limited ability to make up that difference," said Brian Thies, senior director at Fitch, on Wednesday's call.

"So I would say it can be a concern for loan performance at this point."

This was seen in late February, when regional bank New York Community Bancorp ( NYCB ) posted $2.7 billion in losses and a $552 million provision for credit losses in its fourth quarter, including on a New York-based rent-controlled multifamily loan.

Fitch highlighted 10 banks with the greatest multifamily loan exposure as of year-end 2023. Flagstar Bank , which merged with New York Community Bancorp ( NYCB ) in 2022, topped the list with 43.6% of its loan portfolio in multifamily.

Other banks with a high proportion of multifamily loans include First Foundation Bank, Dime Community Bank , Pacific Premier Bank and Apple Bank for Savings , according to Fitch.

These and other banks are exposed to rent-controlled multifamily loan markets in states with stringent rent-control laws including California, New York, New Jersey and Oregon.

There were 49 banks at the end of 2023 with at least 5% of multifamily loans past due on their payments, the ratings agency noted. Most of these consisted of regional and community banks.

The most capital-constrained banks will likely look to sell more of these loans - and at a loss, the Fitch analysts noted.

"We would consider most U.S. banks as well-reserved currently for multifamily lending," Thies said.

"But it's generally going to come down to the value of the collateral and how readily the bank can dispose of that."

(Reporting by Matt Tracy; editing by Costas Pitas)