Germany’s top eight ship financiers face up to €16 billion euros ($22 billion) in credit losses in 2014 as an increasing number of shipping companies face difficulties in repaying their loans, according to Moody’s Investors Service.
A fifth of their €105 billion of shipping loans are categorized as non-performing, the ratings agency said in a report.
“Struggling shipping companies are finding it hard to service their loans, and consequently non-performing shipping loans will continue to rise at the eight German banking groups examined in the report.”
“To date risk management and mitigating measures allowed banks to largely avoid liquidating ships at current depressed second hand market values.”
But with the shipping sector in the fifth year of a downturn, banks are increasing their loan-loss provisions, reflecting the rising potential for credit losses.
Moody’s said only 30 percent of the problem loans it examined were covered by loan-loss provisions which “is likely to prove insufficient.”
“Less diversified banks with significant shipping sector concentrations are the most exposed to persistent stress in the sector.”
The Bundesbank, Germany’s central bank, last month warned of an “especially high “ risk of default on shipping loans carried by the country top seven ship financiers, which had lent €86 billion to the industry.
HSH Nordbank, the world’s biggest ship financier, DVB Bank and NordLB are among the most vulnerable among rated German financial institutions, according to Moody’s.
HSH Nordbank, which is 85 percent owned by the German regional states of Hamburg and Schleswig-Holstein, is currently awaiting final approval from the European Commission for a €10 billion state aid package. The Hamburg-based bank posted a net loss of €104 million in the first nine months of 2013 from a year earlier loss of €41 million as provisions for bad ship loans continued to weigh on its earnings.
NordLB set aside €210 million in the third quarter to cover losses on its shipping loans. Despite signs of slight improvement, the bank, which has €16.9 billion in shipping loans, said it will still have to contend with the effect of the shipping crisis well in into 2014.
Almost three quarters of the loans held by German banks are in the three most troubled shipping sectors – containers, tankers and bulkers.
Contact Bruce Barnard at firstname.lastname@example.org.