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Sunday, February 19, 2017

Global Shipping Meltdown Impacts European Banks

February 11, 2017

Photo:  International Chamber of Shipping

Photo: International Chamber of Shipping

 The collapsing maritime shipping industry is stoking another European banking headache, this time in economic powerhouse Germany, says a report in WSJ.

 
While the Commerzbank, Germany’s second largest bank, reported earnings, warned that its losses on shipping loans could be as high as EUR600 million ($641 million) this year after nearly doubling last year to EUR559 million.
 
Stephan Engels, Commerzbank’s chief financial officer (CFO) admitted that there was little immediate prospect of recovery. “Our view for 2017 is just as critical as it was for 2016, as far as shipping overall is concerned,” he said. “We still have -particularly for container ships – more new vessels coming on to the market than are being scrapped. And that in a market which is already on the whole operating below full capacity.”
 
Last week, Deutsche Bank AG (DB), Germany’s largest bank, said its expected losses from shipping loans nearly tripled, to €346 million, from a year earlier.
 
These news points to a major weakness in the German banking system: its financial sector’s exposure to the international shipping industry. There is an inherent link between trade, the shipping industry and banks, given the interdependence of their operations. 
 
In Germany's port of Hamburg--one of Europe's richest cities--state-owned HSH Nordbank is racing to find a buyer or face liquidation after suffering massive losses on shipping-related debt.
 
“Analysts say the continued wave of write-downs indicates German banks remain hesitant to take the painful measures needed to restructure their businesses, almost a decade after the global economic crisis,” the WSJ comments.
 
According to reports, last month Royal Bank of Scotland (RBS) concluded a deal to sell at least €600m of shipping loans as part of its efforts to leave the sector, with Japanese financial services group Orix Corp and Germany’s Berenberg Bank named as the buyers.
 
The world shipping industry does not expect to see a strong recovery or boost in demand this year. As shipping profits decline, it will become increasingly difficult to service debt. This means banks will run a higher risk of writing off more loans.
 
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