Due to a significant increase in allowance for credit losses, Germany’s DVB Bank suffered a net loss of EUR 506.3 million (USD 600.1 million) in the first six months of 2017, compared to a net income of EUR 14.1 million (USD 16.7 million) posted in the same period of 2016.
During the first half of the year, DVB’s allowance for credit losses surged to EUR 445.3 million from EUR 83.4 million, reflecting market developments. New allowances recognized for credit losses totaled EUR 519.7 million of which EUR 497 million was accounted for by shipping and offshore segments.
“The increase in allowance for credit losses was largely required for legacy exposures in the Shipping Finance portfolio, and for financings in the Offshore Finance portfolio,” Ralf Bedranowsky, CEO and Chairman of DVB Bank SE’s Board of Managing Directors, explained.
Given persistent oil price uncertainty, oil and gas companies have continued to reduce their exploration and production spending, which has further curtailed demand for offshore vessels and equipment. Shipowners remain under pressure from low charter rates and competition for employment. Against this background, owners of vessels and drilling rigs adjusted their capacities, through lay-ups, restructuring or consolidation.
Excess capacity remained a major challenge on shipping markets throughout the first half of 2017. This was accompanied by escalating liquidity shortages faced by shipowners. The challenging market conditions triggered numerous new restructuring measures, thus influencing the performance amongst many market participants.
Whilst many international shipping financiers withdrew from the market, DVB said it continued to enter into new business with selected shipping clients, in a market environment characterized by less liquidity. This was conducted on a selective basis however – hence, with clearly lower volumes than in the previous year.
At the beginning of August 2017, DVB received an EUR 500 million contribution to income from its parent company, DZ BANK AG, Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main. DVB will recognize this contribution in income during the third quarter of 2017.
In its outlook, the bank said that due to the persistent crisis in the shipping and offshore sectors, DVB expects risk costs in its shipping and offshore businesses to remain high throughout the financial year 2017. Accordingly, risk management in these two divisions will continue to command particular attention, as well as proactive restructuring measures, DVB added.
“The bank will keep supporting their shipping clients in a market environment characterised by less liquidity supply, on a selective basis – yet with markedly lower volumes of new business,” DVB further said, adding that the shipping and offshore industries have yet to see the end of the ongoing consolidation phase.