German lenders are facing more loan-loss pain due to their exposure to older, less efficient vessels, ratings agency Moody’s has said.
It cited Commerzbank’s logging of a “meaningful increase” in provisions for its legacy shipping exposures last week as “credit negative” for the German banking sector, as it indicated that those banks with big shipping portfolios will need “significant” additional provisions themselves.
Commerzank logged legacy shipping loan losses of EUR 559m ($595m) in 2016, from EUR 311m in 2015, Moody's said.
The bank expects further shipping loan-loss provisions of between EUR 450m and EUR 600m this year.
“The upper end of this range translates to almost 13% of its total shipping exposure,” Moody’s added.
The agency also pointed to Deutsche Bank saying this month it had increased its loan-loss provisions for shipping to EUR 346m in 2016 from EUR 124m a year earlier.
And in December, hsh portfoliomanagement, the state-owned legacy loan spin-off of HSH Nordbank, set aside EUR 341m for losses on the EUR 5bn portfolio it acquired in June from HSH.
Moody’s said HSH and Nord/LB aim to significantly reduce their exposures to ship lending.
But it added that this will be difficult at current coverage-ratio levels given the challenges that shipping companies face.
“This means that banks will be pressed to increase their provisioning levels, which will severely burden their profit and loss statement,” it added.
Moody’s said adequate provisioning levels depend on several factors, including the type and purpose of ships.
“Offshore, container and bulker ships typically attract higher provisioning, while cruiseships do not,” it added.
“Also notable is that compared with the ship finance portfolios of Asian banks, German banks’ ship exposures appear to be more mature and thus on average comprise less efficient ships.
“This distinction becomes more important during times of rising operating costs through increasing oil prices.”
