Valley National Bancorp's Q1 profit plunges on bigger loan-loss provisions

April 25 (Reuters) - Valley National Bancorp reported a slump in its first-quarter profit on Thursday, dragged down by a fivefold increase in rainy-day funds on account of its exposure to commercial real estate.

High interest rates and borrowing costs have heightened worries of debt defaults in the commercial real estate (CRE) market, which is already in doldrums due to empty office buildings in the post-pandemic era.

Valley National's provisions for credit losses surged to $45.3 million in the first quarter, compared with $9.5 million a year earlier.

The lender said the increase in provisions was driven by commercial real estate, commercial and industrial and construction loan portfolios.

Investor focus this year is on the CRE exposure in regional lenders' loan books after New York Community Bancorp reported a surprise quarterly loss in January due to writedowns on loans tied to the sector.

Valley National's stock was last down 2.6% in afternoon trading, after falling as much as 7.6% earlier in the session. The bank's shares are down roughly 30% so far this year, underperforming the regional banking index.

Scrutiny of regional banks has increased after the failures of Silicon Valley Bank, Signature Bank and First Republic Bank last year reverberated across the global financial system.

Profits of banks, particularly regional lenders, have declined broadly in the first quarter as higher rates raise the cost of holding deposits and discourage borrowers from taking out mortgages and other loans.

Valley National's net interest income, the difference between what a bank earns on loans and pays on deposits, declined nearly 10% in the first quarter to $393.5 million. Net interest margin contracted to 2.78% from 3.15% a year ago.

The bank reported net income of 18 cents per share in the three months ended March 31, versus 28 cents a year ago. (Reporting by Manya Saini in Bengaluru; Editing by Shilpi Majumdar)