The worst consequence and the biggest fear of banks dealing in shipping finance, at a rate of 77 percent, is the creation of non-performing loans, that continue to create risks to economic development and financial stability.
This is the conclusion that emerges from research conducted by XRTC on “Shipping Financing 2020 – Trends and Prospects after the spread of COVID 19”. XRTC Business Consultants Ltd conducted a survey on the prevailing conditions and parameters, especially in the international shipping financing market, between May 10-20, 2020, with the participation of international executives from the global shipping financing market.
Most of these NPLs are expected to come from the recently restructured loans that will once again be in the red again. This means that the main task of banks in the coming months will be to reduce non-performing loans.
- The majority (39 percent) of participants stated that their loan portfolio in transportation financing ranges between $1 billion to $5 billion. About 22 percent said that their exposure is equal to or less than $1 billion, while another 22 percent said between $5- $10 billion. Fewer credit institutions (11 percent) appear to have exposure equal to or greater than $10 billion.
By the end of 2019, shipping funding was still attracting investor interest, with German banks reducing non-performing exposures (NPEs). Although this was expected to continue, given the significant volume of shipping loans also held by the Scandinavian, Dutch, and Greek banks, the new reality set by the pandemic is changing plans.
While only 5 percent of participating institutions have purchased non-performing loans (“NPL”) from other institutions, 35 percent have sold part of their shipping portfolio in the last 10 years. The NPL amounts, or percentage of transactions in the total shipping portfolio, have not been disclosed.
From 2018 until today, almost 13 billion euros in non-performing loans related to shipping has been put on the market as German and Greek banks tried to clean up their balance sheets under continued pressure from the European Commission and the European Central Bank.
As pointed out by XRTC Managing Director, Mr. G. Xiradakis, the increase in Non-Performing Loans-NPLs prompted the European Central Bank (ECB) to conduct a thorough review of the European banks’ maritime portfolios, resulting in many banks reviewing their strategy on these exposures and starting to deleverage. This has led to reductions from many European and British banks and the entry of Chinese banks and leasing companies.
Greek banks continue to support shipping, despite ongoing domestic problems. The fact is that the accumulated experience, the conservative strategy, and the effective control by the central bank of Greece were reasons that have prevented larger losses for Greek banks on shipping. On the contrary, this has resulted in the existence of stable financing for businesses by banks and the continuation of maritime financing in a bid to maintain their profitability.