Shipping lenders in Germany will continue to feel the pressure in 2017

For the shipping lenders in Germany the year 2016 was devastating with loan portfolio sales and bank-driven vessel sales reaching rock bottom. But 2017 is unlikely to be better because major players will continue to keep their balance sheets de-risked.

Some players promise to be more active in the coming year. But the fact remains that last year’s total bill in risk costs will be high when the full-year financial reports was published. The first nine months of 2016 alone resulted in a huge loss provision for shipping loans of over EUR3 billion, with the state bank Nord LB taking the biggest hit at EUR1.65 billion.

The net loss of Nord LB is proof that there is little hope for German ship owners. While the state-owned bank has been a major source of shipping loans in the past, when other banks are exiting the business, it will now reduce its overall exposure. The bank’s executive board has reduced shipping exposure to EUR12–14 billion by the end of 2018, which is EUR5 billion less than in March 2016.

Another state-owned bank HSH Nordbank signaled a modest expansion of its lending capacity. It is expected to sign new shipping loans in 2017 for a total of EUR0.6 billion according to head of ship financing, Christian Nieswandt.

But the focus are likely to be on the vessel and portfolio sales from its non-core shipping loan portfolio. Because of complex privatization up ahead, however, the portfolio might remain with the German states that own it. In a bid to clear a majority of non-core debt, the bank’s executive board will also continue to transfer bad debts, which they started last summer with nominal EUR5.0 billion debts transferred to the public law institution of Hamburg and Schleswig-Holstein. This covered more than 250 ships.

The fourth-largest shipping lender in Germany, DVB Bank, will take on new shipping loans of more than EUR2 billion, which is made possible with its shorter average maturities that allow it to renew its book faster and open room for new loans.

Promotional bank for exports and projects, KfW Ipex Bank, on the other hand, is expected to sign in new commitments of almost EUR17 billion, which is roughly the same size of its shipping exposure in 2016.
Small players are expected to capitalize on domestic and international opportunities ignored by major bank players. Over the years, Ostfriesische Volksbank, for example, has financed about 180 vessels, while Berenberg Bank in Hamburg is said to have a ship lending capacity of EUR500 million that is put up by an unnamed international investor. Berenberg Bank, however, would focus on the core region of Berenberg.

The problems of Germany’s shipping banks were caused by the 2004-08 shipping boom that yielded toxic legacy assets and the fall of the freight and charter markets in dry cargo and containers. Despite small active players and major banks still open for limited shipping exposure, the fact remains that new lending volume is slower than 2016. Shipping loans are likely hard to come by for ship owners.