German shipping lenders are facing 'huge' extra provisions for under-performing loans as the European Central Bank (ECB) pushes for new measures to combat the crisis.
A board member at one bank involved, speaking anonymously to the International Financing Review, said ECB demands could trigger massive allowances, write-downs and potentially even bank failures..
The ECB is in talks to tighten up the way lenders value bad loans.
The report said the ECB wants valuations based on ship value, not long-term projected cash flows and charter estimates, as currently.
It is also calling for banks to increase provisions to 60% of the value of loans in arrears.
HSH Nordbank, KfW IPEX-Bank and Commerzbank have already met this criteria, but DVB Bank and NORD/LB only had coverage of 23% and 48% respectively at the end of 2016, it was claimed.
The bank director said: "Logically, it is understandable what the ECB wants to do.
"I can feel their need for it – because for every year through the crisis, the banks have been over-valuing their portfolio. But the regulators have to be very careful: if they trigger us as a bank to do something that we don't want to do, it could also have collateral damage."
"For the German maritime industry, this is going to be big. It is going to change it fundamentally."
TradeWinds reported in June that the ECB has warned it will conduct in-depth, on-site inspections over the next 18 months of banks exposed to ship lending to identify remedial actions.
German banks have set aside billions of dollars for loan losses over the last couple of years.
