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Ship financing in uncertain times

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A long-term perspective is essential for financing maritime portfolios in a period of extraordinary market volatility.

Discussing ship finance, one of the key themes at Europort 2023, Michael de Visser, Managing Director of Shipping at NIBC Bank and Mare Forum Ship Finance moderator, explains that a long-term perspective is essential for financing maritime portfolios in a period of extraordinary market volatility.

With five decades’ experience as a trusted financial partner to shipowners and maritime investors, NIBC Shipping, the maritime arm of NIBC Bank, is fully aware of the unpredictable nature of the industry. Today, this volatility is set against a broader backdrop of inflation, rising interest rates and uncertainty in the banking sector. Yet if these conditions cast a cloud over the outlook for maritime portfolios, Michael de Visser, Manager Director of Shipping at NIBC Bank and regular moderator of Mare Forum Ship Finance, sees a silver lining.

Volatility calls for pragmatism

“The current conditions may have an adverse effect on economic growth, which is a driver of ship demand,” he says. “Meanwhile, the order book is gradually growing, and this could upset the demand/supply balance, potentially leading to a correction that may in turn prompt banks to reduce their shipping portfolios. But the maritime industry’s inherent volatility is what makes it so exciting for us lenders – that is if we approach it pragmatically; otherwise, it can provide a painful lesson.”

‘Through-the-cycle’ lending

With a pragmatic, ‘through-the-cycle’ approach to financing, lenders can ensure that there is no right or wrong time to expand their maritime portfolios, De Visser continues: “You can always expand your portfolio as long as you follow a through-the-cycle model whereby you apply lower loan-to-value levels at the high end of the shipping cycle and higher loan-to-value levels at the low end.”

This approach makes it difficult to grow in strong markets when there is more competition from lenders, he admits, but banks entering the shipping sector with aggressive terms when conditions are favourable may find they need to exit with write-offs in case of a correction in ship values and earnings – a “painful lesson” indeed.

Incentivising decarbonisation

Emerging environmental regulations warrant further consideration for banks moving to expand their maritime portfolios. At NIBC, decarbonisation imperatives factor into every lending decision, De Visser explains: “The global fleet has grown in recent years while its relative emissions have reduced, but this doesn’t mean the industry can rest on its laurels. In fact, it should redouble its efforts to achieve the long-term target of Net Zero. For our part as a bank, we must support decarbonisation initiatives and maintain dialogue with our clients on their fuel efficiency and emissions to ensure we are financing sustainable vessel operations.”

Join the discussion at the 22nd Mare Forum Ship Finance, and the Ship Finance Pavilion, at Europort 2023 – 7–10 November.