Tough Line on Shipping Loans: ECB

Posted by Joseph Keefe
Friday, August 15, 2014

ECB in discussion with German supervisors; question over treatment of ship loans in health check. Compromise emerging which may involve 'haircut' on loan valuations.

The European Central Bank is taking a hard line on the controversial issue of how shipping loans should be valued in a wide-ranging review into the health of the euro zone's banks, several sources familiar with the matter said.

The ECB is making sure the euro zone's most important banks have properly valued their assets and have enough capital to withstand future crises so it can begin with a clean sheet when it takes over as their supervisor from Nov 4.

In the past, critics said national supervisors overlooked or even tolerated warning signs of potential shortfalls at banks for fear of causing upsets. A regional supervisor like the ECB which is free from national bias is expected to do a better job.

Taking a tougher line on shipping loans, crucial for several banks in the euro zone's powerhouse Germany, would show that the ECB is resisting the influence of national interests in one of its powerful member states.

Shipping was one of the problem portfolios identified early on in the ECB's banking reviews, as the industry suffered one of its worst ever downturns in the last six years, raising the prospect of massive losses for banks who supported the sector.

The sources said that the ECB had deemed models German banks use to calculate the value of ships they financed as being based on assumptions that are too optimistic, demanding a mark-down after discussing the matter with German supervisors.

Two sources familiar with the review said shipping valuations had been hotly debated for months since, while the ECB suppports conservative valuations generally, shipping is one of the only areas where the tests allow scope for discretion.

After long discussions, a compromise is now forming, several sources said, adding that banks may end up having to apply a so-called prudential haircut to the models they use for the purpose of the health check.

This means that German ship financiers, among the largest in Europe, will face bigger losses on shippng loans, giving them a worse result in the ECB's overall assessment of their health. At its most extreme, they could be forced to raise more capital.

The implications for banks in the Netherlands and Greece, who also have extensive shipping portfolios but valued them on a different basis, are unclear.

Commerzbank has a shipping loan portfolio of 13 billion euros ($17.38 billion), HSH Nordbank has 20 billion euros and NordLB 16 billion euros.


So far, German banks used discounted cashflow (DCF) models to calculate the collateral value of the ships they financed, which include multiples of future cash flows attached to the loans.

The derived value is currently higher than the ships' market value, mainly because the shipping industry remains stuck in a crisis following flagging global trade, rising fuel costs and over-capacities.

The Baltic Dry Index, a key measure of dry bulk freight rates, has fallen more than 60 percent since the beginning of the year.

The ECB, on the other hand, would prefer to use a calculation that is geared closer to the market value.

With negotiations continuing, the latest prospect was that the prudential haircut could be 12 percent, two sources close to the discussions said.

It was not clear yet how large the additional writedowns for banks in the health checks would be as a result of the modification, one banker said.

An ECB spokesperson declined to comment in detail, but said: "We are working according to the [tests'] Manual and will come up with requirements that produce appropriately conservative outcomes and are consistent across countries."

German regulator Bafin declined to comment, as did the Bundesbank. The two institutions share banking supervision in Germany.

By Andreas Kröner


Maritime Reporter September 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

VT Halter Begins Building LNG-powered ConRo Ships for Crowley

VT Halter Marine, Inc., a subsidiary of Vision Technologies Systems, Inc. (VT Systems), has commenced construction on the first of two liquefied natural gas (LNG)-powered,

NYK Line Joins PNW West Coast Metro Pool

Effective October 20, 2014, NYK Line has become a member of the PNW West Coast Metro Pool (WCMP) operated by Trac Intermodal. The WCMP operates chassis at all major marine terminals,

ISS Manages Heavy-lift Project at Port of Mombasa

Inchcape Shipping Services (ISS) announced it has completed another complex heavy-lift project in Africa, this time at the Port of Mombasa in Kenya. ISS was

Tanker Trends

KOTC Takes Delivery of Product Tanker Mutriba

Classification society ClassNK said it has completed work on the 31,445 GT product tanker Mutriba, built by Hyundai Mipo Dockyard Co., Ltd. (HMD) as part of a series

New Dual Use Piracy Barrier Launched

Guardian Maritime launched Guardian Greenwater, a new product that was developed to deal with the issue of greenwater on-board deck following turbulent weather conditions,

Weak Oil Threatens US Export of LNG

Plunging global oil prices may turn hopes for cheap liquefied natural gas supplies from the United States into a costly disappointment for Asian buyers who have


Video: USCG Medevacs Navy Sailor off Virginia

The U.S. Coast Guard (USCG) medevaced a man Wednesday from a Navy vessel off the Virginia coast after watchstanders at Coast Guard Sector Hampton Roads in Portsmouth

VT Halter Begins Building LNG-powered ConRo Ships for Crowley

VT Halter Marine, Inc., a subsidiary of Vision Technologies Systems, Inc. (VT Systems), has commenced construction on the first of two liquefied natural gas (LNG)-powered,

New Research Vessel Delivered on the Great Lakes

The new oceanographic research and fisheries assessment vessel, Arcticus, completed her sea trials and was delivered to the U.S. Geological Survey's Great Lakes Science Center on October 17.

Government Update

Russian Minister to Intervene with Gazprom on Slovakia Gas Flow

Russia's Energy Minister Alexander Novak will intervene with Gazprom to raise reduced gas shipments to Slovakia to contracted levels, Slovakia's economy ministry

AMSA Rescues 2 East of Darwin After Boat Sinks

The Australian Maritime Safety Authority (AMSA) coordinated the rescue of two men early this morning East of Darwin. About 4.30am AEDT this morning, AMSA detected

USS Milius Departs on Deployment

The guided missile destroyer USS Milius (DDG 69) departed Naval Base San Diego Oct. 20 on an independent deployment to the Western Pacific and Indian Oceans.

Maritime Contracts Maritime Security Maritime Standards Navigation Pod Propulsion Port Authority Salvage Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1327 sec (8 req/sec)