National Australia Bank (NAB) is looking to expand its presence in shipping finance despite the ongoing challenges in the ship finance sector.
Singapore-based Geir Bakkelund, head of shipping and asset finance asia at National Australia Bank (NAB), admits that obtaining financing in shipping remains a challenge in general, especially for smaller shipowners with stretched balance sheets, while he notices that many of the traditional lenders are adopting a conservative strategy by focusing on a small group of top-tier owners, which is making it harder and very costly for smaller players to secure financing at low leverage ratios.
“Our approach is very straight forward – we want to support the strongest players in each segment, financing modern and liquid assets,” says Bakkelund, adding that NAB currently only provides senior debt.
“For our first shipping transaction in late 2014, we put a lot of emphasis on the corporate itself, focusing on their risk approach and track record. It was done at a low point in the cycle, which reduced the downside risk. Having been in Asia for more than 40 years, the region remains important for our business,” he adds.
Bakkelund reckons Chinese capital has been very helpful for a large number of shipowners with challenging balance sheets.
“Some industry observers will argue that they are potentially causing an oversupply in the market by providing additional liquidity, but I do not see that happening on a large scale,” Bakkelund maintains.
According to Bakkelund, the transactions that NAB has been involved in have stemmed from an owners’ need to improve liquidity or access a new form of financing, as opposed to freeing up equity for new ships.
Bakkelund is of the view that although the leasing mode makes sense for high capital-intensive industries such as shipping, the sector needs to go through a cycle or two before knowing how this will play out as shipping has not traditionally been a large leasing market given the more volatile nature of the freight market.
“A key challenge in ship finance is the exposure to non-performing shipping loans for lenders. In addition, lenders are also experiencing a compression on margins due to strong competition for the most credit worthy clients in the market. In view of these challenges, we are conscious of the market cycle when assessing opportunities and we have taken a generally conservative approach by aiming for acceptable return for risk,” Bakkelund says.
Speaking of the future of ship finance, Bakkelund, who started out as a shipbroker, reckons regulatory challenges in the global banking sector will be a key area of focus and banks will be monitoring the impact of Basel IV on asset-backed lending, as well as any changes from sanction control regimes and Know Your Customer (KYC) requirements.