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It was William Fairclough, the managing director of Hong Kong shipping line Wah Kwong, who told Splash TV presciently near the start of the global pandemic that shipping was set to perform financially far better than many other industries this year. His prediction has played out - the average of the ClarkSea Index - Clarkson’s shipping barometer for all segments - in the year to date is up 25% year-on-year. Not many industries will record improved fortunes this year over 2019. This resilience, borne out of a brutal past decade for shipping, has not gone unnoticed. Banks, which had hitherto dropped shipping like a stone, are now relooking at the sector as a comparative safe haven in which to invest their money. After 10 years of sliding, Western ship lending has finally picked up, according to Athens-based Petrofin Research, although it is too early to say that European banks have fallen back in love with shipping. The decline of Western banks ship finance appears to have run its course European banks' outstanding shipping loan portfolio stood at $177.6bn at the end of last year, up a fraction from $177bn in 2018, marking the first increase in 10 years . France's BNP Paribas and Germany's KfW top Petrofin’s annually updated ranking of the world's top 40 shipping lenders with the Export-Import Bank of China and Bank of China close behind. I do not see traditional banks learning to fall back in love with shipping again, not yet “The decline of Western banks ship finance appears to have run its course,” the annual study suggests, adding: “The UK, French and Dutch banks have increased their portfolios. Germany, primarily on account of KfW, has stabilised its decline. Greece has marked an increase, whereas Scandinavian banks have receded.” Even with the onset of Covid-19, banks look like they’re increasing their support to shipping this year. “By mid-year, bank lending started to return across all main sectors (dry, wet and containers) with many banks actually taking advantage of the upheaval and improved margins to increase their loan portfolios,” Petrofin noted. New entrants There continues to be a trickle of new entrants consisting of smaller European, Middle Eastern and Asian banks, mainly supplying their own local clientele. Amongst the newer banks are M&M, Berenberg, Warburg, ATB, Bank of Cyprus, Hellenic Bank, Astrobank, as well as Japanese lenders, all of whom have continued building up their loan portfolios. The report’s lead author, Ted Petropoulos, tells Splash Extra that bank lending in shipping seems to be “holding well” this year. Veteran financier Dagfinn Lunde, who heads up Dagmar Navigation, argues that it is the arrival of new names, especially from Greece, that has helped turn the overall bank lending figures around, but overall the traditional names remain cautious, having been burnt from their exposure to the sector since the global financial crisis. “I do not see traditional banks learning to fall back in love with shipping again, not yet,” Lunde tells Splash Extra. “The fact is that the traditional ship lending banks are still reducing, but the overall number is not so dramatic because there are a few new lenders and the Greek banks are back.” Mark Williams, managing director at UK consultants Shipping Strategy, says his discussions with traditional banks suggest that finance is selectively available. “A strong relationship with the customer is important as is a solid business plan. My impression is that predicable cash flow is as important as ever,” Williams says. In search of good margins For Randy Giveans, senior vice president at Jefferies, the way he reads the current ship finance mood is traditional banking sources are not embracing shipping per se, but they’re no longer avoiding the sector at all costs. “With global interest rates so low, European banks are looking for anything with good margins, so at LIBOR + 300-400 bps, the banks are more willing to lend to shipowners,” Giveans says. Also, with asset values at relatively low levels while companies' balance sheets are relatively strong, banks view a 60% LTV loan to a shipowner as relatively low risk, the Jefferies analyst points out. Another important point he makes is that the durations are now shorter and the annual amortisation is steeper, meaning lower balloon payments at maturity in three to five years. Given the avalanche of regulatory pressure ship finance will be increasingly difficult to fit into the business models of the banks Regulatory hurdles One person who is adamant that there’s no chance European banks will come back to anywhere near their previous massive shipping portfolios witnessed pre-global financial crisis is Philip Clausius, the founder and managing partner of Transport Capital. “The universe of shipping companies that regulated Western banks are willing to lend to is shrinking and so is the lending capacity per client,” Clausius argues, adding: “Given the avalanche of regulatory pressure particularly in Europe we believe ship finance will be increasingly difficult to fit into the business models of the banks.” Next year’s annual Petrofin ship finance report will be eagerly awaited to see if European banks manage to increase their portfolios again.

Are European banks learning to fall back in love with shipping?

A study from Athens suggests Western banks are slowly rebuilding their shipping portfolios. Is this a blip or the start of a new long-term trend?

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