Albeit early signs of recovery became visible during the first months of 2017, the shipping industry’s protracted slowdown will continue to exert pressure on German ship lenders’ profitability.
In its latest report, Moody’s rating agency informed that the five biggest German ship lenders reported outstanding ship-related loans of EUR 59 billion at the end of 2016, with an average problem loan ratio of 37% in 2016, up from 28% in 2015.
This rise forced several banks to raise reserves and, in part, realise losses during 2016. While this has improved the banks’ aggregate problem loan coverage ratio to 51% at the end of 2016, from 45% in 2015, Moody’s believes a coverage ratio of at least 60% is necessary for banks to be adequately provisioned for potential losses from shipping loans.
“Despite measures taken by individual banks in recent years, some German lenders to the shipping industry will face incrementally higher credit costs as long as the industry fundamentals remain weak and supply outstrips demand,” Michael Rohr, a Moody’s Vice President – Senior Credit Officer, said.
Sustainably raising the coverage ratio to this level will be most challenging for DVB Bank S.E. and Norddeutsche Landesbank GZ. These two banks therefore are at risk of incurring net losses and see their capital erode further during 2017, Moody’s informed.