Commercial mortgages will be the next big problem for lenders, though not as devastating as the residential woes of the past two years – that seems to be the prevailing consensus among economist and industry analysts.

Probably three-quarters of the 123 community bank failures this year have been triggered by soured commercial real estate portfolios, and that estimate is likely on the conservative side. Large lenders certainly aren’t immune – take the now-bankrupt commercial mortgage giant CIT, for example – but according to Fitch Ratings, mid-size and smaller banking institutions will likely endure the brunt of commercial loan losses.

For the U.S. banking sector overall, commercial real estate (CRE) exposure remains “a sizable but generally manageable” risk, particularly among the largest financial institutions, Fitch said in a review released this week. Smaller regional lenders, on the other hand, have much greater exposure to declines in CRE performance, and as a result will likely face downgrades from the ratings agency as rents decline further and vacancies increase in response to the broader economic downturn.

As of June 30, 2009, U.S. banks had approximately $1.1 trillion of CRE loans, roughly half of which were held by banks in Fitch’s rated universe. Fitch estimates that 10 percent of this balance is exposed to potential impairment. These figures do not include the approximately $500 billion in construction loans, including residential construction, that are subject to even greater risk, the ratings agency said.

For the 36 banks rated by Fitch with less than $20 billion in assets, CRE exposures represent more than one-quarter of total loans outstanding. None of the four largest US-based banks (assets in excess of $1 trillion) have CRE in excess of 10 percent of total loans, according to Fitch’s analysis.

“The potential for further deteriorations in commercial real estate portfolios is a major contributor to Fitch’s negative outlook for the banking sector,” said Thomas Abruzzo, managing director and co-head of Fitch’s North America financial institutions group. “Loan losses are increasingly likely given the expectation for ongoing declines in commercial real estate markets.”

Fitch expects that rating actions taken as a result of its CRE review will be concentrated among the smaller and mid-size banks. The magnitude of negative rating actions is likely to be no more than a notch, the agency said, but the possibility of more significant downgrades is quite possible among those regional banks with the greatest exposure.