Surge in Shipping Risk Coverage Widens NordLB’s Loss

As a result of a huge increase in the risk provisioning for ship financing, German shipping bank Norddeutsche Landesbank (Nord/LB) closed the financial year 2016 with a loss of EUR 1.9 billion (USD 2.02 billion).

Overall the group set aside EUR 2.94 billion for ship financing risks in 2016, after EUR 840 million in the previous year on the back of “the dramatic deterioration in the global shipping crisis over the course of 2016.”

“The loss posted by Nord/LB for 2016 as a result of the huge increase in risk provisioning for ship financing is painful, especially on this scale,” Thomas Bürkle, Chairman of the Managing Board of Nord/LB, said.

The bank said that the increase in risk provisioning was especially noticeable at its subsidiary Bremer Landesbank (BLB), which was fully acquired by the bank in the wake of the shipping crisis. BLB will in future concentrate mainly on corporate customers, private banking and energy financing in Germany as a bank focused on small and mid-sized companies situated in north-west Germany.

“Ship financing, which was previously run as separate business segments in both firms, will be brought together at Nord/LB. The intention is to combine the capital markets business of the two banks as well. In organisational and legal terms, BLB will be fully merged with Nord/LB, but will continue to operate under its own brand,” the bank said, adding that full integration is the first step in the new group-wide “One Bank” transformation programme.

The programme aims to place the group “as a whole on a new footing,” Bürkle said, adding that the objective is to make the group profitable again by cutting its costs by EUR 150–200 million by the end of 2020.

With a view to improving the quality of the portfolio, Nord/LB is focusing on reducing the ship financing portfolio. The shipping loan portfolio was already reduced from EUR 19 billion to EUR 16.8 billion in 2016. The aim is to reduce the size of the portfolio to between EUR 12 billion and EUR 14 billion by the end of 2018.

“We have set ourselves the objective for 2017 of reducing the shipping loan portfolio by a further EUR 3 billion,” Bürkle said.

Looking ahead, Nord/LB informed that it expects to end the first quarter of the year with a good result. However, it “will continue to have to cope with heavy burdens from the shipping crisis in the coming quarters.” Despite the foreseeable burdens, Nord/LB believed it is realistic to expect a profit for 2017.

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