Bank lending to shipping falls $42.5bn to lowest level in a decade

The 2017 figure is down $42.5bn on 2016 and now stands at the level of 2007, according to Greece's Petrofin Global Bank Research.

Ted Petropoulos-led Petrofin reports the lending book is $42.5bn lighter than at the beginning of 2016. Mainly because of the removal of Commerzbank and RBS, which “are selling their loans or the vessels at a fast pace”, the lower bank portfolios by many banks, as well as “a stabilisation of exposure by Chinese banks, as a result of the sharp increase of Chinese leasing".

Petrofin said 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.

“Shipping banks are quite cautious and seeking safety through known and large clients, higher margins and low finance percentages, as well as stringent terms," said Petrofin.

Further, Petrofin's Global Index of ship finance is now standing at its lowest point since first published in 2008.

The fact the global fleet is growing as bank finance is coming down implies lower average bank finance per vessel, and that 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," added Petrofin.

The declining trend in Europe is very consistent, but the Far East also shows a small fall, primarily due to the dominance of Chinese leasing in financing new and second hand vessels, which Petrofin does not include in its research as the assets are owned by the leasing companies. However, the fall in Far Eastern ship finance did not affect its share of the global portfolio, on the contrary, Far Eastern share has increased from 32% to 33% as European banks are declining faster.

Looking at European lending, Petrofin notes Germany, traditionally the biggest lender, is falling sharply. Greece, financing primarily the Greek fleet, has, despite its well known economic situation, managed to control their declining portfolios and have carefully continued to lend small amounts to clients. The UK and Ireland group has lost Bank of Ireland which has withdrawn from shipping. Other European banks show stability and continue cautiously.

Petrofin notes finance options for medium / small owners are limited. “Chinese leasing companies heavily rely on the size of the owner’s company in order to discuss any transaction,” it said.

“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 which seem to cater for the medium to smaller owners are preparing to enter ship finance.”