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Greek banks stepping up to fill shipping's funding gap

Greek banks stepping up to fill shipping's funding gap
In times of crisis the Greek shipping community and maritime-backed funds are among the "key players" supporting the Greek banking system, including contributing to the recapitalisation of Greek banks, Shipping and Aegean minister Miltiadis Varvitsiotis never tires of reminding us.

He was at it again, indeed twice within days, recently, on one occasion declaring: "Shipping is the only sector in which we [Greece] are world champions."

For Greece to maintain this “crown” the country’s banks and its shipping community have to work hand-in-hand to ensure both have the ability to plug a multi-billion dollar funding gap, caused by several European banks pulling out of the shipping sector or scaling back exposure in response to tougher regulations after the financial crisis.

Reflecting exactly what Varvitisiotis was talking about is confirmation Greece’s Alpha Bank is to raise about $510m from a deal backed by shipping loans, one of the first of its kind in Europe for a year.

The fundraising, arranged and financed by Citigroup, bundles together around 35 individual shipping loans with an average life of two-and-a-half years with a five-year final maturity, industry sources said.

“Securitisation transactions are part of Alpha’s programme. They are a tool to differentiate the bank’s funding sources,” said an Alpha source.

The money raised will help the bank funnel the liquidity into new loans and support the Greek economy’s recovery. The deal also represents a way for the bank to shift the loans and an alternative source of capital for ship owners.

Alpha, Greece’s fourth largest lender, and Citigroup have been working on a deal for sometime, first revealing the plan in June. Alpha Bank will act as the servicer of the loans, which include financings provided for bulkers and tankers.

“What it does is it frees up Alpha Bank’s books to enable them to start providing new finances,” said a finance industry source.

Alpha Bank, which has a shipping portfolio of around $2.4bn, along Eurobank, National Bank of Greece and Piraeus Bank, made up Greece’s four systemic banks which received, say banking officials "what amounts to a virtually clean bill of health" from the stress tests performed by the European Central Bank, the results of which were published on 26 October.

However, as it did with other banks in the Eurozone, the ECB told the Greek lenders to increase their provisions for bad shipping loans. In all, Eurozone lenders were told to increase this provision by a quarter to EUR7.3bn ($9.25bn). German banks were mainly affected having to hike their provisions to EUR5.2bn from EUR4.1bn. The ECB said Greek banks have to increase theirs by EUR200m to EUR1.1bn; Dutch banks EUR100m to EUR600m while Italian banks can keep their provisions at the present level of EUR300m.

“Following the credit file review, a total of 21.3% of the shipping debtors reviewed were reclassified to non-performing," said the ECB.

Germany’s HSH Nordbank, the world’s largest lender to shipping, was ordered to make a write down on its EUR20bn shipping book. Although the bank will not reveal the extent, there is speculation in Hamburg the write down was between 18% and 25%. HSH has a Greek book of around $2bn according to Petrofin Bank Research. Indeed, HSH passed the stress test by the narrowest margin of any German bank.

The financial crisis has seen Greek banks becoming deeply involved in the financial struggles of the country’s coastal shipping network, with the Piraeus Bank, now a virtual owner of shipping companies operating in the crucial domestic ferry network.

With a portfolio of just under $4bn Piraeus bank is the key backer of shipping.

Its role in the coastal sector is underlined by the fact, that according to the highly influential Greek think tank, the Foundation for Economic and Industrial Research, the domestic ferry sector directly and indirectly contributes over EUR15bn ($19.5bn) or some 8.5% to the country's GDP. Further, according to the foundation, the coastal shipping sector provides some 260,000 jobs, a 7.2% of total employment, with about half of those employed in island prefectures.