LONDON Dec 14 The global shipping industry will
hit a credit crunch if proposed new bank capital rules are
implemented in a sector already weighed down by toxic debt,
bankers involved say.
The Basel Committee of banking supervisors from nearly 30
countries met in Chile last month in an effort to complete the
new rules for lenders in the world's major financial centres. It
is now trying to pin down the details.
While the rules do not target shipping specifically, some
of the biggest rises in requirements under the proposed
regulation are likely to be in the models banks use to decide
how much capital to set aside when they lend to shippers.
Around 90 percent of world trade is transported by sea but
the shipping industry is stuck in its worst slump on record, as
international trade slows and freight rates fall in a market
flooded with too many vessels.
Sources told Reuters this week the regulators were working
to soften proposals after the European Union threatened to
boycott the proposed rules, fearing big increases in capital
requirements that would throttle credit.
Despite the progress on the talks, which still need
endorsement, banking sources say the likelihood of a sizeable
increase in capital requirements remains the core worry.
Ratings agency Moody's said this week its global shipping
outlook for 2017 was negative.
German banks - which provide a quarter of the world's $400
billion of outstanding shipping debt - are struggling to recoup
their loans. Other European lenders with stable shipping
portfolios fear the proposals will squeeze them too.
"Those banks which have clearly defined prudent strategies,
top credit, very carefully structured transactions ... are
thrown into the same bracket as those with higher risk strategy
and with problematic portfolios. That is the biggest problem,"
said Paul Taylor, global head of shipping finance with France's
Societe Generale Corporate & Investment Banking.
"Everyone suffers - but those with defaulting portfolios
will be the big losers."
Taylor said depending on what emerges, banks may consider
re-allocating some of their capital from shipping elsewhere
"which may make a better return on equity".
"Therefore this could mean that we do less business due to
pricing," he said.
"These are real assets we are financing," he added. "If the
liquidity is too expensive, the economy will be hit."
Currently banks in Europe tend to use internal models, based
on how similar assets have performed historically.
Sources told Reuters in July the European Central Bank had
launched a review of banks' lending to the shipping sector,
which had already raised concerns among lenders that could be
required to set aside more capital and make higher loss
Many lenders to the shipping sector are looking at ending or
scaling back their exposure, but that will take time.
"This is going to heap even more pressure on banks with
large exposures to shipping that have non-performing loans," a
shipping finance source said.
Deutsche Bank, state owned rivals HSH Nordbank
and NordLB are among the German banks with some of the
biggest portfolios of troubled shipping loans.
Chief executive of NordLB Gunter Dunkel said the Basel
proposals would "affect us, but not as much as other German
Deutsche Bank said in their quarterly results in late
October they were still positive that any new rules would not
send their capital requirements spiking.
HSH is currently trying to sell parts of its portfolio
including 500 million euros of shipping loans. A source familiar
with the HSH transaction was still confident and said the bank
was committed to selling shipping loans.
Finance sources said offers received so far came were at 25
to 35 percent of the value of the loans.
"If that's the value of such debt and you add potential
Basel regulations, they are looking at a big hit somewhere," the
shipping finance source said.
Britain's Royal Bank of Scotland, once among the
biggest lenders to the sector, said in September it would wind
down its global shipping finance business, ending efforts to
sell off loans.
Hans Christian Kjelsrud, head of shipping, offshore and oil
services with Nordea, said lending to the shipping industry was
tough for many European banks since the financial crisis.
"It is a result of a very challenging business model for
European banks given the capital intensity of the business and
the demand for long-term U.S. dollar funding of which many
European banks are short," he said, "and also because many banks
have taken substantial loan losses over the last five to six
Kjelsrud said Nordea, the Nordic region's biggest
bank, was well capitalised and not concerned by a new regulatory
deal, known as Basel IV. Norway's biggest bank DNB
echoed that view.
"Italian banks, German banks have a longer way to go if they
are to conform to Basel IV," said Harald Serck-Hanssen, head of
large corporates and international at DNB.
(Additional reporting by Arno Schuetze and Andreas Kroener in
Frankfurt and Maya Nikolaeva in Paris; Editing by Ruth