In Hellenic Shipping News 15/05/2015
Financing towards Hellenic maritime companies and ship owners posted its first yearly increase in recent years, said Petrofin Research in its latest annual research. The overall Greek loans (drawn and committed but undrawn) rose to $64.019 billion by the end of 2014, 4.1% higher than the $61.498 billion of 2013. According to Petrofin Research, “drawn loans are up by 2.85% and Commitments by 18.11%, the latter prompted by the high Greek newbuilding orders. Of the 5 Greek banks active in the shipping finance market, National Bank of Greece shows an increase by 7.33% and Aegean Baltic by 11.99%. The rest show minor decreases”.
Overall, Greek banks’ exposure is up by 3.17% to a total of $10,8 billion, reflecting the increased stability in 2014 for Greek banks. This increase is the first sign of a recovery, since 2008. Now that the dust form mergers and acquisitions has subsided, the Greek banks are showing a slight rise in their portfolio, which is quite admirable in the current banking climate of Greece.
Among Greek banks, Piraeus Bank ranked in third place of the total shipping portfolios with loans of $3.85 billion, followed in fourth place by the National Bank of Greece, which controls a shipping loan portfolio of $2.933 billion. Alpha Bank ranked in 8th place overall with a portfolio of $2.42 billion, while Eurobank took fourth place among Greek banks and 20th overall with a portfolio of $1.315 billion. Finally, Aegean Baltic took 30th place overall with a loan portfolio of $201 million.
Meanwhile, international banks with a Greek presence continue to reduce their exposure, in 2014, by 4.23%, compared to a reduction of 9.35% in 2013 and a reduction of 3.9% in 2012.
International Banks without a Greek presence show an impressive increase of 17.23%.
The number of banks involved in Greek shipfinance has risen to 49 from 46 banks last year, as some new players now entered cautiously. The top 10 Greek ship financing banks have reduced their portfolios by 4%, resulting to a decrease in their market share down to 57.24% ($36.6bn) from 62.38% in the previous year ($38.3bn). But the next 10 banks have increased their market share by 3.05% with an increase of 17.6% in their portfolios to $17bn from $14.46bn”.
The report also showed that “European banks continue to account for the vast majority of total loans and their share is down to 85.44% from 90%. RBS remained the market leader but with a reduced market share down to 11.87%. The Lead Managers in syndicated loans are slightly down by 1.86%. Forward commitments to newbuldings have decreased as a percentage of committed loans. But in numerical terms, they are substantially higher than the year before. By far the most interesting development is the rise of 17.23% of international banks operating outside Greece. The best overall performance over the last 14 years were ING and DB Shipping, followed by Credit Suisse and Nord LB, whereas LBG and Deka were in general decline”, said Petrofin Research.
As Petrofin Research noted in its analysis, over the course of 2014, banks adjusted their lending in reflection of the quality of their loan portfolios, overall credit limits, the demand for finance by their clients and the quality of new loan proposals. “Consequently, it is not surprising that banks in Greek ship lending followed suit and their portfolios grew by 4.1%, on a yoy basis, marking the first such growth since 2009. Even Greek banks, sensing that the country and Greek banks were coming out of its recession, recommenced ship lending and showed an overall growth of 3.05%. The overall totals, though were still held back by the decline of some prominent ship lending banks, such as Commertzbank and RBS”, said the report, while adding that it should be noted that all banks tended to keep a large number of their non-performing loans, in the hope of market recovery, thus ‘kicking the can down the road’.
Banks were caught unaware by the huge decline of dry bulk shipping, in the last quarter of 2014 and the first 6 months of 2015. The BDI fell from 1500 in October 2014 to 573 in May 2015, which is a dramatic fall. Even more important is the decline of earnings, which fell to levels well below daily breakeven operating expenses. Hence, the whole dry bulk sector became cash flow negative, with owners needing to fund not only loan interest and principal payments to banks but, also, their own operating expenses shortfalls. This has thrown the whole sector and vessel values into unchartered territories. Non-performing loans became more difficult to maintain and a number of, until recently, solid lending relationships started to show cracks. As the quality of many dry cargo loans declined to ‘alarm’ levels, so have loan losses and provisions grown. Fortunately, the other key sector, that of dirty and clean tankers, recovered and vessel values and incomes rose. The same applied, to a lesser extent, in the container sector, which showed some signs of recovery.
As such, Mr. Ted Petropoulos, head of Petrofin, said that “the appetite for new lending in 2015 weakened, as the dry cargo problems manifested themselves and most banks started to spend considerably more time towards the realisation, sale or restructure of problem loans, as well as raising the standards of new ship lending. The renewed Greek crisis hit Greek banks hard. Increasingly, their liquidity was lost, on account of deposit withdrawals, lending to the state and in addressing the declining quality of their loan portfolios. The adverse Greek financial conditions, also, began to affect some international banks with a Greek presence, which are seriously reviewing the possibility of leaving Greece but continuing to lend from abroad”.
He added that “a gathering trend has been for banks to offer clients the opportunity to purchase their loans at a discount. This discount, would vary but for performing loans is in the region of approximately 10%. The rationale is that a client would need to raise new finance with higher margins and fees and the above incentive is designed to compensate them for such a higher cost. Vulture funds also increasingly looked for loan opportunities and banks started to consider substantial discounts for non-performing loans. As PE funds took a step back from dry bulk but continued for tankers and container vessels, a ship financing gap appeared for strong owners, looking to acquire vessels at distressed levels or even to just finance their newbuilding orders”.
Continuing its analysis, Petrofin Researc noted that “providing a new finance in the tanker sector and indeed most of the other sectors did not change significantly other than the fact that banks became overall less optimistic and more cautious in their lending and terms. In the dry bulk sector though, it became very difficult to provide a loan if income projections fell below operating expenses. Hence, banks started restructuring their loans to even lower percentages of below 50% and at the same time, insisting on having a strong corporate support and enhanced liquidity with deposits in place, to cover the first year or two of the loan debt service”.
“Some owners accepted these terms but a number wished to obtain higher loans, on the premise that the extremely low vessel prices entailed a reduced historical risk, which could justify a higher leverage. However, this belief was not shared by the banks, which wished to limit their shipping risk, due to the poor cash flow and as the prospects of such recovery were unclear. This divergence of views gave rise to the development of privately owned financial institutions (often US based) that would fill the gap left by the banks. Such funds would aim to provide loans on a similar basis as commercial banks but at higher percentages of up to 65%-70% but with considerably higher margins in the region of approximately 6%-9% per annum (depending on the quality of the security and client), in addition to hefty arrangement fees and possibly an element of profit sharing. Often, these providers would be PE funds seeking secure returns on lending. In order to become more competitive and keep the loan breakeven rates low, such lenders would offer longer loan amortisation and reduced repayments for the first couple of years”, Petrofin noted.
The report added that “another development has been most prominent in the Far East and involves Far Eastern leasing companies, leasing vessels to interested clients at higher intrinsic rates of interest (6%-8%, on average), usually involving Chinese or Korean and lately Japanese newbuildings. A number of owners wishing to acquire vessels inexpensively but unwilling to borrow at expensive rates, opted for cash purchases, which would allow them the lowest breakeven rates in these troubled times”.
In conclusion, therefore, “the poor dry bulk market has allowed the development of non-banking finance, to develop on the basis of the limited interest by traditional banks. This trend is expected to continue. As such, the banking ship finance totals understate the actual level of finance obtained by Greek owners, as there are no figures available for non-banking finances.
The assumption of supervisory responsibility by the ECB for all EU banks is a welcomed development and is expected to comfort depositors that all banks within the EU would be subject to uniform rules of compliance and capital adequacy. Over time, this should enable the return of the interbank market to levels that would reflect (at least in part) the levels reached before the financial crisis. This would assist the funding of commercial banks, as they recommence their expansion, when their deleverage process would come to an end.
Looking ahead to the next couple of years, it would appear that Greek ship finance may not continue to grow, as a greater number of banks are re-aligning their ship lending budgets and await a prolonged shipping recovery and/or are reviewing the quality of their existing loan portfolios”, said Petrofin.
The report concluded that “thus far, new bank lenders have been few and can mostly be found in local Far Eastern and Middle Eastern banks, providing some finance to Greek owners with a Far Eastern presence. Such loan volumes are not high but local names have started to appear in new shipping loans. The demand for newbuilding finance continues unabated, as a huge part of the current order book remains not financed. However, Greek owners are increasingly needed to delve deeper into their pockets for additional capital as often commercial values have fallen to levels below newbuilding contracted ones. A number of owners are currently negotiating newbuilding delivery extensions with the shipyards, in order to allow more time to take delivery, in the hope that both the market and ship finance conditions shall improve.
In conclusion, therefore, the banking ship finance market shall continue to be restrained in the years to come and Greek ship lending is not expected to rise in line with the development of the Greek fleet and the level of newbuilding deliveries, as owners shall increasingly rely on non-banking sources of finance, as well as their own resources, to meet the industry’s challenges”.
