Global ship lending steady at $398 billion, despite world’s fleet growth says Petrofin Research

Global ship financing from the banking sector has remained steady over the course of the past 12 months, amounting close to $400 billion, almost identical to last year's, said Petrofin Research in its latest survey. It's worth noting though, that during the same period, the global fleet rose by 1.76%, from 89,676 to 91,526 vessels, which is a clear testament that this growth was achieved through alternative finances, other than banking sources, like private equity funds, or enhanced equity by owners. Of course, this isn't something new, as Petrofin's data supports the view that bank ship finance in relation to the world fleet has been contracting as a source of shipping funding for the past eight years.

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The Top 40 banks have a total of $397.84bn exposure to shipping.

"According to Clarkson's Intelligence, as of the end 2016, the total cargo fleet orders stood at a further 2,867 vessels or 15% of the current fleet. It is expected, therefore, that as the fleet shall grow at a faster pace than ship finance by banks, that there will be further declines in the importance of banking related shipfinance as opposed to other forms of finance and investment/equity. Current shipping conditions are not attractive to shipping banks, as all sectors are displaying signs of pressure in vessel values and earnings due to overbuilding, existing surpluses and large orderbooks. In addition, current financial conditions are also not conducive to more ship lending. Indeed, it is fair to say that, on a global basis, lending has slowed down substantially post 2008 as banks try to downsize and as bank regulations and supervision, e.g. ECB, Basel III, have increased. Unable to increase their capital base, banks are forced to restrict their lending and choose to lend among the best risk/reward industries. Currently, shipfinance is not a leading contender for loans. The need to support their own local shipping has been a strong motive underlying the expansion of the Far Eastern banks. Their national policies are in tune with local bank interests and this has provided a useful solution to a number of owners with local newbuilding orders seeking finance", says Petrofin Research.

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Introducing the Petrofin Global Index of shipfinance -between 2008 - 2015

Meanwhile, "as Western shipbuilding has largely disappeared (except for specialist vessels), Western banks are under less pressure to maintain their shipfinance presence in their home countries / Europe. The collapse of the KG system has accelerated the departure of many German banks. German banks still support the owners of their 'home base', but reduce finance to owners from other countries. This is not a universal rule as some banks have a small national shipping interest or have built up a substantial and well performing international clientele. Still, the trend is not particularly supportive of other nationalitie, such as Greek owners who are viewed as international owners. Putting the European bank global shipfinance portfolios under the microscope we observe that Dutch and Scnadinavian banks show a small growth and the marked decline in commitment is shown by the most traditional lenders, such as the German, British and Irish and Greek banks".

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Introducing Petrofin Global Index - compared with Global Fleet development index - between 2008 - 2015

Ted Petropoulos, Head of Petrofin Research noted that "there are signs that Far East ship finance appetite is slowing down, as well as that there has been a slowdown in new orders and a restructure of the Chinese shipbuilding industry with much unnecessary capacity being eliminated. With prevailing shipping conditions not helpful either, it is possible that Far Eastern shipfinance growth will slow down in the short run. However, the position may also be changing in the West with the effective departure of the major banks that decided to leave the industry, e.g. RBS, Commerzbank, HSH and others. Once the above banks shall disappear, it is likely that the remaining banks plus newcomers in the field of shipfinance, may signal the commencement of a base and, possibly, a rise in Western shipfinance. Despite the above, some banks clearly found the success formula to grow during this difficult period, with Credit Suisse, ING, Unicredit, BNP Paribas and ABN Amro backing the trend. Of course, we also need to highlight the continuous growth (both in relative and absolute number) of all the Far East lenders, who supported local newbuilding orders with new loans. Interestingly, some Far East banks and leasing entities have begun to focus on quality Greek names (both public and private), as the rate of new ordering has slackened and their experience with Greek owners has been largely positive".

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European banks' global shipfinance development

He added that "looking into the future, it is obvious that the adjustment process by both the markets and the banks will continue over the next couple of years. As, however, the depressed shipping sectors shall recover, it is expected that shipfinance appetite shall return. The scene will be different, though, as the European domination will further weaken and Far Eastern and other nationality of banks will fill the vacuum. We envisage that new banks shall also join shipping, aiming for the small to medium owners. The risk / reward of shipfinance is changing and will become all too apparent when the recovery prospects for shipping will solidify".

According to Petrofin's data, "lastly, we should mention the increasing presence of non-banking finance institutions that are often the only finance alternative for owners, as well as the development of niche ship finance in the PG, Singapore and other local areas. As traditional bank finance continues to be scarce, conditions for non-banking instruments and local finance shall improve. The special position of Chinese ship leasing companies should be mentioned as a popular means of finance offered by Chinese leasing companies who are invariably owned or supported by local banks. Overall, for shipfinance lending to rise, an improvement in shipping market conditions is necessary. For some sectors, such as dry bulk and containers, this is not expected soon. Beyond shipping itself, the strengthening of balance sheets and capital ratios of banks across the world and more supportive international financial conditions are required for bank lending to increase once more to the benefit of global growth is general and shipfinance in particular", Petrofin concluded.

Source: Hellenic Shipping News