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Another Tough Year Ahead for Ship Financing as NordLB Looks to Cut Exposure

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April 7, 2016

cargo ship


FRANKFURT, April 7 (Reuters) – NordLB expects lower earnings this year partly as a result of the German public sector bank’s efforts to cut its nearly 20 billion euro ($22.8 billion) exposure to the shipping industry, which is still facing tough times.

NordLB Chief Executive Gunter Dunkel said on Thursday it was hard to predict developments this year in shipping markets, which have suffered years of contraction due to weaker trade flows and an over-supply of ships.

“The only certainty is that things will remain difficult,” Dunkel said at a presentation on the bank’s 2015 results.

NordLB aims to cut its portfolio of shipping loans to 12 to 14 billion euros within the next five years, from 19 billion now.

“This will not be possible without an additional negative impact on earnings,” Dunkel said. He said NordLB expected to make further substantial provisions for the portfolio in the coming quarters.

Germany was one of the world’s main centres of global ship finance before the 2008 financial crisis, and five German banks with the closest links to the shipping industry still have around 80 billion euros of loans outstanding to the sector.

European banking supervisors have looked closely at ship portfolios in Germany to ensure the banks have properly valued and provisioned for them.

NordLB’s rivals such as HSH, Commerzbank, DVB and KFW have also been forced to take writedowns and boost capital buffers against shipping loan portfolios turning bad.

NordLB’s pretax profit rose to 653 million euros last year from 276 million in 2014, helped by one-off effects, but the lender said earnings this year were likely to decline.

($1 = 0.8790 euros) (Reporting by Andreas Kroener and Jonathan Gould. Editing by Jane Merriman)

(c) Copyright Thomson Reuters 2016.

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