NordLB has reportedly abandoned plans to offload a EUR 1.3bn ($1.5bn) portfolio of shipping loans to US private equity giant KKR.

The German bank also said that a sale of individual ship loans was more profitable than a sale of portfolios, reports Reuters.

KKR had reportedly put the deal on the back burner earlier this year, partly due to a lack of progress in talks over pricing for the assets, the news agency said.

NordLB had said in April that it hoped to complete a deal by the end of June, following about a year of negotiations.

At the end of June Moody’s Investors Service downgraded NordLB’s long-term debt rating to “Baa3” from “Baa2” with a negative outlook.

“While NordLB made adequate progress in its de-risking programme, supported by a less adverse shipping market environment than in 2016 Moody’s believes that the bank will only gradually rebuild a sufficient degree of resilience against adverse ship market value and freight rates scenarios, leaving it significantly exposed to solvency risks within the next 12 to 18 months,” the rating agency said at the time.

“This rating action reflect Moody’s view that the success of NordLB’s measures to de-risk the bank and stabilise its capitalisation depends to a significant degree on the future development of shipping markets.”

However, Moody’s did say that NordLB was “working hard” to reduce its ship finance portfolio and already has considerable successes to record in this context.

In April 2016 NordLB declared its intention to reduce its ship finance portfolio from EUR 19bn to between EUR 12 and EUR 14bn.

By the end of March 2017 it has already been able to achieve a decrease of around EUR 3bn, reducing its portfolio to EUR 15.9bn.

“It is becoming apparent that the target range for the reduction will already be reached at the end of 2017, and hence a year sooner than originally planned,” Moody’s said.

Germany’s five largest lenders are wrestling with outstanding shipping loans of EUR 59bn, with DVB Bank and NordLB topping the list for problem loans.

The banks need to shore up capital to deal with potential losses as a result of greater scrutiny pending from the European Central Bank (ECB).

The ECB has warned that it will conduct in-depth, on-site inspections over the next 18 months of banks exposed to ship lending to identify remedial actions.

That poses the greatest challenge to DVB and NordLB, who are most at risk of incurring net losses and seeing their capital erode further in 2017.