Bank shipfinance into Greek shipping has contracted by 8.77% during 2016. This is the biggest contraction since 2009. This should be seen in the light of an almost 3% growth by Greek shipping in DWT terms over 2016 (Greek Shipping Co-peration Committee). According to the latest annual report from Petrofin Research, the overall Greek loans (drawn and committed but undrawn) booked both in Greece and worldwide as of 31/12/ 2016 fell from $62.711 billion to $57.211 billion. The Petrofin Index for Greek Shipfinance fell from 379 to 346. Specifically, Drawn loans are down by 5.34%. This year, Commitments are markedly down by 38%. This confirms the underlying contraction of bank ship finance, as well as a switch to to other forms of finance (Funds, Chinese Leasing, etc), which are rapidly expanding.
Of the 5 Greek banks, two banks show growth. Eurobank is up by 2.59% and Alpha by 4.29%. The overall Greek bank exposure is down by 4.93%. Greek banks’ share of Greek ship finance is up to 15.25% from 14.63%. Of course, this is happening within an overall reduced Greek portfolio. This is a resilient performance by Greek banks despite continuous domestic problems.
Meanwhile, international banks with a Greek presence continue to reduce their exposure, in 2016, by 11.49%, compared to a reduction of 9.7% in 2015, 4.23% in 2014, 9.35% in 2013 and 3.9% in 2012. The main development has been in the International Banks WITHOUT a Greek presence. For the first time they show a decline, which stands to the order of 7.31%. The consolidation of Chinese banks is mostly due to the rapid development of Chinese leasing. The top 10 Greek ship financing banks although they have collectively reduced their loan portfolios by 5.36%, their share of the total has gone up to 55.19%, as the whole portfolio has fallen.
European banks continue to account for the vast majority of total loans (81.04%), although their share is steadily dropping. For the year 2015, they held 81.23% of the total Greek portfolio, compared 85.44% in 2014 and 90% the year before. An important rise has taken place in the The Lead Managers, where these are up by 13.87%.
Forward commitments to newbuldings, which by definition show the position of trust in the future of shipping, are down by 1% compared to an increase of 8% last year. Overall, the bank ship finance industry is in difficulty and this is reflected in the reduced loan portfolios for Greek ship finance as well. The reasons are analysed in the Conclusions of this report.
In his analysis, Petrofin’s Ted Petropoulos noted that 2016 was a particularly difficult year for Western banks and began to also affect Far Eastern banks. The record falls in the dry bulk, offshore and container segments, coupled by a poor performance in the wet sector, drastically affected both vessel values, which represent banks’ collateral and cash flows, which represent clients’ ability to service shipping loans. The number of non-performing shipping loans rose, as owners were forced to consider scrapping or layup or trading at below breakeven rates. Record bank losses, as a result of bad loan losses and provisions, were recorded by all the shipping banks, many of which needed to step up the pressure on non-performing clients. In this very negative shipping environment and with the prospects of a meaningful shipping recovery being both uncertain and distant, it is no wonder that bank appetite for new loans waned. It is, therefore, a major achievement that some banks managed to effect a countercyclical lending policy, details of which appear in this year’s research of their loan portfolios. Examples of growth, in the case of RBS, which is fast departing ship finance, were either other banks e.g. Berenberg Bank, or leasing companies e.g. Orix, or individual clients buying back at a discount their loans, with the support of fresh banks”.
According to Petrofin Research, “most bank loan sale activity centered on sales to equity, vulture or special situations funds with intense negotiations and numerous transfers taking place during the year. Despite the dire shipping conditions, loan discounts were not massive and were on average 10% – 20% of the value of the underlying loans, depending on their credit and performance status. Clearing the slate is an important factor and a key and necessary prerequisite for some banks to refocus their shiplending strategies. In cases where banks continued to work with clients seeking recoveries, 2016 was the year when bank patience largely run out. The unheard of arrests by a prominent “iconic” bank, such as RBS foreclosing on major names that faced an asset to loan breach but were reportedly servicing their debt, caught the market by surprise. In most other cases, fresh money was needed in some form as a precondition to restructures being provided. To the above sector related problems must be added the increasingly stringent bank regulations, capital constraints, difficult public markets for bank stocks rendering fresh capital creation very dilutive and revised stricter risk management models. For new credits, the terms and conditions were set very tightly, resulting in few transactions satisfying these exalted conditions. The problem was especially felt by the small to medium owners with traditional owning structures, which failed to identify additional sources of liquidity and collateral, in case of a future need. Under the above very trying conditions, it is not surprising that loan volumes dropped by 8.77% over the year. As we had forecasted, the decline did accelerate in 2016 and the momentum was still in place in early 2017. Despite the above, as indicated, some banks found a way to grow with notable banks being ABN Amro, HSBC and Citibank”.
Additionally, “Greek banks have realised that shipping represents potentially the best outward looking and potentially profitable Greek sector for them, unlike most other Greek sectors, with the exception of tourism. The continued delay in the closing of the second austerity program has exacerbated Greek bank problems, as liquidity is tight, red loans are rising and capital adequacy remains always a challenge. In the circumstances, Greek banks have performed very well from 2016 to-date”, Petropoulos concluded.