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10 Jul 2017
Ship Financing Drops by $42.5 billion as Traditional Bankers Exit the Market
Credit : TSO Bureau


"2016 marked a substantial drop in bank ship lending. The fall by US$42.5bn is mainly attributed to the removal of Commerzbank and Royal Bank of Scotland, the lower bank portfolios by many banks, as well as a stabilization of exposure by Chinese banks, as a result of the sharp increase of Chinese Leasing. Global bank finance now stands at the 2007 levels. Bank sentiment is still affected by loan losses and high provisions, sales of portfolios to financial institutional funds, international and European restrictions and the still not so bright outlook of shipping, which makes shipping banks quite cautious and seeking safety through known and large clients, higher margins and low finance percentages, as well as stringent terms. We note that although bank finance is coming down, the global fleet is expanding. This implies a) lower average bank finance per vessel, and b) new vessels are being financed by a combination of equity, leasing, funds and private individuals’ equity. The fall is mostly attributed to the decline of interest and ability by Western banks to maintain their loan portfolios. The outlook for 2018 and beyond Shipping markets are maintaining their cyclicality. The dry bulk market did recover from its lows in the early part of 2017, but since then has retraced a large part of its gains. Nevertheless, the rise in vessel values and earnings has provided some comfort to both owners and the banks, as well as a glimmer of hope. The dirty and clean tanker markets are looking especially weak with very little in the way of immediate recovery prospects. The same and more applies to the offshore and LPG sectors and, to some extent, to the chemical markets. There was a brief rise in the container market, but it was short lived. In general, therefore, shipping markets across the board are not supportive to fresh bank lending. Loan portfolios of banks have slimmed as a result of vessel sales, write offs, loan sales and normal reductions via repayments. This has been useful for Western banks seeking to contract their lending as a result of capital constraints. The one ray of hope is the US banks who are coming out of the difficult years in a more robust way and whose capital ratios are stronger and which have room to expand. As outlined in the global ship finance survey, the Far East is showing a slowdown with shipfinance down and being taken up by leasing and export finance. In addition, Japanese banks have recently restarted lending to their domestic clients especially in the dry sector. However, it is obvious, that these options are not open to medium / small owners. Chinese Leasing companies heavily rely on the size of the owner’s company in order to discuss any transaction. As traditional bank finance has decreased substantially, this has left the medium to small owners relying on own funds and private equity. Nevertheless, some banks are preparing to join ship finance, which seem to cater for the medium to smaller owners. As these banks appear to have started committing funds during 2015-2016, we are bound to see them featuring in our research, in due course. Some examples are Warburg Bank and Maritime and Merchant Bank. As a general conclusion, we anticipate that over the next couple of years, global shipfinance may form a base. The departure of the previous big lenders, RBS and Commerzbank and the reduction of HSH Nordbank, plus a lot of retrenchment by others, is expected to complete soon. On the other hand, successful banks with a bigger appetite for shipping, such as Credit Suisse, ING, BNP Paribas, ABN Amro and DVB should assist in the above base being formed. Quality large Greek owners have begun to receive direct interest from Japanese and Chinese lenders in support of local newbuildings. Those owners with a good record in dealing with Far Eastern yards have an advantage. Finally, for the banking sector as a whole, a recovery may only be anticipated when public market conditions shall be able to support fresh capital increases via public markets. Such capital for banks would allow them to grow again and it is expected that their interest in shipfinance shall return especially as the available margins are attractive and the clients and loans involved, of a very high level. We shall continue to monitor global shipfinance via regular reports and the publication of our annual global index."
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