Outlook 2018: German banks to start writing new shipping loans

Post-privatisation
Post-privatisation

Fresh equity for ship investments looks scarce in Germany as institutional and retail investors continue to shun the sector. However, there are signs that the major state banks – Nord/LB and soon-to-be privatised HSH Nordbank – are feeling their way back into the market.

Speaking at last year’s HANSA Shipping & Finance forum in Hamburg, HSH CEO Stefan Ermisch said he expected the bank to increase its shipping lending activities again under private ownership.

“Shipping is going to be part of the business in the future in a measured and sustainable dimension,” he said, adding that he could even imagine the bank increasing its exposure to the sector beyond the officially proclaimed limit of EUR7–8 billion (USD8.2–9.4 billion) if the shipping industry gets on a more stable path. HSH would be “lobbying for secure structures with strong partners that deserve to be financed”, Ermisch said.

HSH’s core bank shipping loan portfolio has been reduced to just EUR6 billion, below its long-term target, according to its results for the first nine months of 2017. The same volume is held in its non-core/restructuring unit.

As 2017 drew to a close, the main unknown was who was going to be the owner of HSH Nordbank following the completion of its privatisation. Some believed the sale might not go through at all, and HSH would instead be run off by its owners.

Ermisch brushed off this belief, emphasising that the bank has received sound offers and that he firmly expects a transition to private ownership. If so, the question is whether the core and non-core banks get sold to different suitors. If it gets sold in one chunk, the new owner will have to stay focused on working out the EUR6 billion non-core shipping loan book, which could be a distraction and may delay HSH’s return to new lending.

Whichever decision is taken, Ermisch argued that a strategy was already in place to reduce the non-core shipping loan book to just EUR3.6 billion by the end of 2018. During the first nine months of 2017, the bank also posted a cautious increase in new lending volumes to shipping to EUR400 million – double the volume in the same period in 2016, although still very small by historical standards.

Meanwhile, Germany’s biggest commercial lender for shipping, Nord/LB, caused headlines with the planned acceleration of its portfolio cutback, setting itself a new target of EUR10 billion of total shipping exposure in the medium term. Until November 2017, the official target had been EUR12 billion.

At the end of September 2017, Nord/LB’s portfolio had a nominal volume of about EUR13 billion, a staggering two-thirds of which was classed as non-performing. More than EUR4 billion of non-performing shipping loans are to be worked out through sales of single assets, fleets, and loan portfolios over the coming two years.

However, the bank’s head of ship finance, Tobias Zehnter, said the portfolio restructuring would no longer prevent the bank from ramping up its new business. The focus would be on full-recourse mortgage loans and corporate loans. The original target volume of USD500 million for new business would likely be increased “by multiples” in 2018, he said.

Germany’s other major shipping lender, DVB Bank, has been avoiding publicity since it was taken private by its parent group, DZ Bank, in the face of escalating shipping losses. Market sources told IHS Markit that the bank has still been actively signing new business, albeit at a reduced level.

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