It has been a fraught period for shipping cash and credit suppliers this year, with no certainty of a sustained recovery in 2020.
A new report on Key Developments and Growth in Greek Ship-Finance from Petrofin Research noted that Chinese lending and leasing came to an abrupt halt for non-Chinese business as the Covid-19 pandemic hit. The shipping crisis coupled with exposure to aviation were compounded by the drop off of US Dollar funding for Chinese leasing companies.
Syndication leadership fell out of favour for banks as they struggled to balance new lending and retiring loan debts. Then there was the mass exodus of investors from the major public equity markets with very few new issues recorded and shipping stocks taking a significant hit. The flow of private investment and new bonds also slowed from Norway although there are signs of this trend now reversing.
“As the global economy and international trade entered into unchartered territory, confidence amongst both banks and owners fell,” said Ted Petropoulos, head of Petrofin Research. “The rate of loan requests and the loan throughput by banks fell as credit and risk departments by banks were hard put to support fresh lending at a time of such crisis and uncertainty and sought lending only to the strongest clients and credits often on stringent terms.”
The pressure of the pandemic led to an increase in loan margins as perceived shipping risk rose and as banks started to face loan restructure requests from hard pressed clients, he added.
Some banks, and Petrofin notes that Greek banks in particular, managed to continue lending to their stronger clients throughout the pandemic. With rising loan margins internationally, Greek banks found they were able to secure liquidity at a reduced cost which enabled them to reduce their margins to competitive levels with other non-Greek lenders.
“Greek banks perceived the pandemic as an opportunity to enhance their position with Greek owners who faced limited finance possibilities,” said Petropoulos.
In a reflection of last year, Petrofin research calculated that Greek ship finance levels dropped 0.13% to $53.1bn in 2019 with declining/exiting banks largely countered by expanding or new entrant banks. Of note, it found the top provider, Credit Suisse, grew by 10% ($7.7bn) and held a 14.5% market share in 2019. Other growing banks were BNP Paribas, KfW, CIT, as well as Eurobank, Alpha bank, Aegean Baltic bank and Bank of Cyprus. The two main departing banks, Nord LB and DVB, showed large falls.
The Petrofin Index finished the year at 321, down 1 point from 2018. It started at 100 in 2001 and peaked at 443 in 2008.
Back to 2020 and the emergence from lockdown in the Northern Hemisphere is being eagerly watched by lenders, with the expectation that global economies will start to recover. “Banks are monitoring this recovery which may well turn out to be volatile and fragile,” said Petropoulos. In this recovery period many banks will be solely focused on their own loan related issues, but it expected that loan requests will increase as the global economy, international trade and the dry bulk market start to recover.
Equity market investors are anticipated to return as both the economy and the shipping sector recover and Petrofin expects Chinese ship finance and leasing will return in the second half of 2020 – but not to the high levels of 2019. A return to lending by Japanese banks and lenders to Greek owners is forecast for later in 2020. Stimulus packages in the US, EU and Japan in particular will also help to drive demand towards the end of 2020 and in 2021.
A confident forecast for the recovery of the Greek ship finance market is harder to glean. “It is difficult to predict when the Greek ship finance market shall recover to pre pandemic levels,” said Petropoulos. “Thus far we are not aware of any fresh banks entering ship finance nor of any existing banks leaving the market. However, the effects of the pandemic crisis are still being worked through the banking system.”
Petrofin notes that banks still face strict capital ratio requirements and difficulties in raising additional capital via the public markets, which restricts bank lending as a whole and as a consequence ship finance.
Environmental regulation is cited as a wild card that could have a profound effect on the future outlook of ship finance. Here, Petrofin points to the recent commitments of several financial institutions to engage in more sustainable lending and participate in ambitious environmental lending practices. “It remains to be seen whether the Covid-19 pandemic will slow down this trend or, notwithstanding the crisis, lending will become more environmentally friendly, thus significantly altering the ship finance landscape in the years to come,” Petropoulos concluded.
Source: Baltic Exchange