Norway’s niche lender Pareto Bank believes it is well placed to capitalise on healthy shipping markets as it continues to build up its maritime loan book.
The Oslo-listed bank said 2021 brought a record high net profit of NOK 504.5m ($56.5m), up from NOK 428.4m in 2020.
The shipping book is now worth NOK 1.43bn ($160m), an increase from NOK 1.39bn at the end of September.
The lender has achieved annual growth of 20% in shipping since the end of 2018.
Pareto says it is well-positioned in its target market: small and medium-sized shipowners and the Norwegian project sector.
The bank points to its quick decision-making and specialised team as giving it a competitive advantage.
The lender maintains it has never made any losses on shipping loans.
Excess tonnage soaked up
“After a long period of weak market conditions, overcapacity in the shipping sector has been absorbed, and utilisation looks promising for most segments,” the bank said.
The lender now has 20 shipping customers and finances 37 vessels, down from 39 at the end of the third quarter.
The largest exposure is $36.4m and the average commitment size is $8.1m.
Corporate loans make up 42% of the exposure and the rest relates to investment projects.
The average weighted loan to value (LTV) of the portfolio is 34%.
The company’s LTV maximum is 55%, and lower if the entry point is at the higher end of the cycle or earnings visibility is low.
Pareto does not cover offshore shipping.
Credit quality was described as stable in the past three months of 2021.
Boxships the biggest sector
Container ships account for NOK 470m of the maritime book and product tankers NOK 273m.
In the fourth quarter of 2021, net earnings edged down to NOK 126m from NOK 126.5m in the same period of 2020.
Activity was high and lending growth solid in the period, the bank said.
Pareto has a focus on Norwegian shipowners, family offices and project finance brokers.
Domestic shipowner Oslo Bulk has been a customer of Pareto Bank since the lender started up ship financing in 2012.
Today, Pareto is one of the shipping company’s main banks.
Big rates set to continue
The company’s founder Alf Andersen said in the quarterly report: “Pareto Bank’s understanding of the MPP shipping segment has been of great value to Oslo Bulk. In a specialised segment, in-depth analysis is required to assess credit risks accurately.”
Looking ahead, Pareto expects “exceptional high” container rates to continue in 2022 due to high freight demand and port congestion.
Newbuilding deliveries will accelerate significantly long-term, however, and reduce fleet utilisation and rates.
Dry bulk fleet use is expected to gradually pick up due to rebound in steel-related trades and increased grain volumes. With a record low orderbook, the outlook is positive.
The spread of Omicron does not seem to have the same impact on travel restrictions as other variants, and a robust oil demand growth is expected for 2022, the bank said.
With normalised oil stocks and a gradual increase in Opec+ production, the tanker market is expected to move towards healthy utilisation in the second half of 2022.
