2017 was a year in which market sentiment, especially in the dry market, showed some improvement. In addition, global economic growth and international trade continued to grow at a robust pace approaching 4% p.a. overall. With the slowdown in new vessel deliveries across a number of sectors, the improved sentiment allowed for some cautious optimism among banks. For a small number of banks, it presented the opportunity to continue their growth and increase market share, whilst for others the opportunity to reduce or sell large parts of their loan portfolios.
At the same time, Petrofin said that, yoy loan provisions started to fall. The above changes have impacted to an extent on the 2017 Bank Research© but they are expected to impact more fully in the forthcoming end 2018 research.
It is becoming apparent that the impact on the total number of those banks, which are either downsizing or leaving shipping, is beginning to run its course and will be a reduced factor henceforth. Problem loan portfolios and loan provisions have also started to reduce. It is very encouraging to note that as bank loan margins are attractive and bank loan demand is high, a number of banks have either commenced lending into Greek shipping or have started to increase their commitments.
The new banks are either based in Europe e.g. Bank of Cyprus, Hellenic, Amsterdam Trade Bank, M&M, Corner Bank and others or are local banks, primarily in Singapore, Malaysia, Hong Kong and Dubai. It should be noted that Orix, which have until recently been a leasing financier has commenced, selectively, to lend to top Greek names, on a traditional bank loan basis. Whilst it remains difficult to forecast future Greek ship finance numbers, it is safe to say that a slowdown in the rate of decline in Greek ship finance lending is expected to commence in the next couple of years. In the event that more shipping segments show improved market prospects, it is well possible that Greek shipping shall start to grow, once again, supported to a large extent by the further growth of Far East lenders. Bank lending terms continue to be strict and lending criteria high. Still, traditional bank lending represents the least expensive source of finance (except for export finance, in most cases). With demand for loans far outstripping supply, as evidenced by the continuous growth in the Greek owned fleet, it is not surprising that other forms of finance have become increasingly popular among owners. Leasing has become the main choice of many small to medium owners, even though Chinese leasing companies prefer larger transactions. The lending ratios of such leasing companies are more aggressive than the 50% - 60% offered by banks and often exceed 70%.
The increased risk is reflected in higher costs, which normally exceed bank finance costs by 1% - 2% and do commit owners to long-term transactions. However, as timing of purchases is of paramount importance to Greek owners, the extra cost is absorbed into the vessel’s acquisition cost. Lastly, we have witnessed increased interest by Japanese leasing companies, especially for Japanese newbuildings.
Such terms are not dissimilar to banking terms. Private equity funds have not only increased their presence in providing investment funds to Greek owners by Petrofin Bank Research© - www.petrofin.gr May 2018 30 sharing in projects but also in offering finance. Their terms are normally high e.g. 9% - 12% per annum, including fees and the cost of funding. In compensation, such funds tend to be swifter in providing their approval, more flexible, allow for longer lending profiles and provide higher finance margin ranging from 50% - 70% of vessel values, depending on the client. The number of such funds (both investment and finance) has multiplied and their interest is currently more focused on second hand vessels.
The Norwegian KS market and the Norwegian investment and finance market has continued to support owners and Greek names have often figured in Norwegian deals. This market has increasingly become more opportunistic and less yield oriented, emphasizing those relative sectors, which offer enhanced recovery potential. Greek banks are clearly committed to Greek shipping as one of the very few sectors in which they can provide their full range of services and build up quality client relationships. Despite the Greek economic difficulties and the high levels of nonperforming loans (the vast majority outside Greek shipping), these banks have nurtured their Greek clients and have increased their lending. As Greek banks and the Greek economy’s prospects shall hopefully improve, so will Greek bank lending, in years to come. In conclusion, shipping market prospects appear to be stabilizing and, in some sectors, improving. This will further propel Greek interest in acquiring more newbuildings and second hand vessels and the enhanced appetite will result in more bank finance and non-bank finance being used. The deleterious prospects of a tariff war and the economic effects of increased sanctions on Iran, Russia and possibly other countries, do appear to dampen hopes of a strong increase of international trade, which is expected to remain, according to analysts and the IMF, at approximately 3.5% per annum. As usual, it will be the supply position and newbuilding orders that will impact on the shipping markets.
According του Ted Petropulos Head of Petrofin, τhus far, the overall shipping fleet is growing at levels commensurate with the rise of demand but this may easily change. We need to also highlight the rise in US interest rates to higher levels e.g. 5-year swap at over 3% p.a. This is a worrisome trend that will adversely impact on vessel breakeven costs. Lastly, the risk / reward of bank ship finance appear to be improving. A more stable international financial climate for banks, coupled by enhanced prospects in shipping, is expected to result in more banks becoming willing to lend into the Greek market. This is a welcome development and prospect.
Main findings
Highlight points of this year’s results for Greek ship finance are as follows:
Bank shipfinance into Greek shipping has further contracted during 2017 by 5.62%, compared to a previous contraction of 8.77% during 2016. This should be seen in the light of the increase of the Greek fleet by 25,276,695 tons DWT to 387,210,742, from 361,934,047 in 2016: an increase of 7%.
The 2017 research supports the evident retrenchment of traditional bank finance as a source of finance. The overall Greek loans (drawn and committed but undrawn) booked both in Greece and worldwide as of 31/12/ 2017 fell to $53,994.96 from $57,211.35m in 2016. The Petrofin Index for Greek Shipfinance, which commenced at 100 in 2001, fell from 346 to 327.
Specifically, Drawn loans are down by 3.69% compared to 5.34% last year. Also, Commitments have fallen markedly by 30.63% compared to a drop of 38% in 2016. This confirms the underlying contraction of bank ship finance, as well as a switch to to other forms of finance (Funds, Chinese Leasing, etc), which are rapidly expanding. Please see Conclusions.
Contrary to the overall results, it should be noted that the Greek Bank group is the only group that shows growth. 4 out of 5 banks show growth, compared to 2 out of 5 last year. Eurobank is up by 24.21%, Alpha by 1.6%, NBG by 2.51% and Piraeus by 2.51% (excluding ferries). The overall Greek bank exposure is up by 4.25%. Greek banks’ share of Greek ship finance has gone up to 16.84% compared to 15.25% last year and 14.63% in 2015. This is a resilient performance by Greek banks despite continuing domestic problems and underlines the commitment of Greek banks to shipping. International banks WITH a Greek presence continued to reduce their exposure, in 2017, by 10.52%, compared to a reduction of -11.49% in 2016, - 9.7% in 2015, -4.23% in 2014, -9.35% in 2013 and -3.9% in 2012. The International Banks WITHOUT a Greek presence also showed a decline for the second year in a row at -4.34%.
The number of banks involved in Greek shipfinance remains at 51, with a small internal reshuffle. Bremer’s portfolio has been taken over by Nord LB and Amsterdam Trade Bank has been added for the first time. Credit Suisse remains in the top position with a slightly reduced exposure by -4.17%.
The top 10 Greek ship financing banks, although they have collectively reduced their loan portfolios, saw their share of the total going up up to 56.17% from 55.19% last year, as the whole portfolio has fallen. European banks still account for the vast majority of total loans at 78.70%, although their share is steadily dropping - it was 81.04% in 2016. For the year 2015, they held 81.23% of the total Greek portfolio, compared to 85.44% in 2014 and 90% the year before. The Lead Managers are down by 29.32% compared to last year’s increase of 13.87%.
Forward commitments, which by definition show the position of trust in the future of Greek shipping, are down from $3.55bn to $2.4bn. However, the forward commitments to newbuildings are up by 2%, which underlines the emphasis by banks into newbuildings as opposed to second hand vessels. In conclusion, traditional bank finance, especially among Western banks, continues its steady decline. Howevewr, bank finance continues to be the main source of ship finance.
Points
- Some of the biggest lenders are rapidly exiting (Royal Bank of Scotland) or have already exited (Commerzbank) with others (Deutsche Bank, HSH and others) rapidly selling off loan portfolios. Chinese bank lending has not grown comparably to the much more aggressive Chinese Leasing, which is not included in our research. We acknowledge that as Chinese leasing companies rely on Chinese bank loans, it is not clear what percentage of lending to Chinese leasing by Chinese banks is reflected in Chinese bank lending, due to classification issues. Most European banks held back during 2017 in order to address their bad loans and/or assign them to special departments and/or await their sale to funds. As more portfolios entered the for-sale market, it is expected that there will be a delay in their off loading. However, bank activity in the 1st quarter of 2018 has picked up among non contracting banks and it will be interesting to compare next year’s results to this year’s impressive lows. Having said that, it is expected that the difficult bank finance conditions that apply especially to small and medium Greek owners, will persist for the foreseeable future and until fresh lenders who will target this sector will appear.
- Greek banks are up for the first time in 2 years. The other two groups continue their downward trend. It should be noted that it is the International Banks with a Greek presence that display the largest consolidation, no doubt influenced by the continuous Greek economic problems. As such, International banks without a Greek presence have for the last years surpassed the International Banks with a Greek presence. It is anticipated that this trend shall continue.
- Forward commitments to newbuildings went up slightly in 2017 showing an increase of 2.07%, reversing last year’s first ever slowdown by 1%. The overall newbuilding allocated portfolio of $1.86bn is down by 30%, compared to 2016’s $2.66bn. Greeks are still debating whether to go out in full force to order newbuildings as the previous over-ordering is still very fresh. Newbuildings by Greeks so far amount to 233 orders, which shows caution. However, latest intelligence suggests that the numbers will show significant growth as the year progresses.
- Citi continues to be the leader of the syndication leaders with a small decrease in the portfolio it is leading. Nordea’s increase of leadership is impressive at 58%. KFW has shown a marked decline by 76.5% and ING has more than doubled its leadership. Porftolios are down by 29.32%. The Aegean Baltic is steady in its pacs of leadership and BNP Paribas is showing a reversal of the last three years’ decline.
