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Fitch: Shipping Losses to Stay High for German Banks in 2014

Time：2013-11-27 Browse：55 Author：RISINGSUN
Losses from shipping portfolios are likely to remain high in 2014, particularly for German banks with large exposures to the sector and higher-risk financing structures, Fitch Ratings says. Nordic banks` smaller and more diversified shipping portfolios are likely to stabilise first, although they will stay under pressure until a sustainable recovery for the sector emerges. German banks active in ship lending, such as HSH Nordbank, NordLB and Commerzbank, may be more affected in the ECB`s asset quality review and stress tests in 2014. 

While we do not consider there to be any material underestimation of shipping risks at German banks, the assessments are likely to include a focus on shipping. In addition, the riskier Kommanditgesellschaft or limited partnership structures commonly used for ship financing in Germany before the start of the shipping crisis remain a particular burden on German ship portfolios. 

In contrast, the downside risk on shipping exposures is limited for Nordic banks because they were typically more conservative in financing structures, have more diversified portfolios and focus on larger ship companies with multiple cash flows and fleets for collateral. The Nordic banks are also more focused on offshore and logistics. 

The shipping sector does not represent a material proportion of loans. This approach means that loan impairment charges for shipping portfolios are likely to stabilise earlier for Nordic banks, although given the individually large exposures, they are likely to remain volatile quarter by quarter. Nordea has reported a third consecutive quarter of declining loan provisions for its shipping, offshore and oil services unit at 68bp of loans in 3Q13, down from 185bp in 4Q12. 

Many banks are trying to sell shipping portfolios or wind down exposures. For example, last week Norway-based DNB Bank sold its debt position against a distressed shipping firm. The UK`s Lloyds Banking Group was reported to have sold a USD500m-plus portfolio of shipping loans this month. HSH Nordbank announced the sale of 10 vessels in April. We believe more asset sales are likely in 2014 and 2015. 

Commerzbank reduced its exposure to shipping loans by around 10% in the first nine months of 2013. There may be a benefit from exiting these exposures ahead of the asset-quality review. Our ratings already factor in the shipping crisis lasting until at least end-2014. There were some signs of improvement in 3Q13, for example in freight rates for large dry bulk vessels. But the oversupply of vessels in dry cargo, container and crude tanker markets means that market imbalances persist, so a full recovery is some time away. 

Nevertheless, the order book of new vessels has fallen significantly since 2008 and should eventually lead to a more stable equilibrium.