Portfolio Lead Advisory Services Weekly Digest - Edition 3

Shipping continues to be a problematic asset class for most European Banks – German banks in particular have continued their decline in contrast with the Far Eastern and North American banks which increased their market share. The COVID-19 pandemic has significantly affected the global shipping sector which in turn has had a strong impact on ship financing banks and non-bank lenders.

As international trade slowed down, charter rates and utilisation of vessels fell below operating costs levels across the majority of the shipping sectors. While the tanker sector fared better as a result of the sharp fall in oil prices and the vessels being used for storage, this was short lived and the sector too now suffers from pandemic restrictions. Banks have now started to face loan restructure requests from struggling clients.

Research from Petrofin on the Greek ship-finance market as of the end of 2019 which was released last week highlighted that the Greek ship-finance levels stood still at $53.1bn. Greek banks have managed to continue lending to their stronger clients having been able to reduce their margins (partly due to their ability to secure liquidity at a reduced cost due to ECB policy) and have perceived the pandemic as an opportunity to grow the business with Greek owners who have limited financing avenues.

Alternative finance during this period remained active and often represented the only available source of finance with specialist lenders increasing margins to offset impact of longer maturities / payment holidays required to ride out the pandemic.

Petrofin also noted that Chinese lending and leasing also significantly slowed down for non-Chinese business, not only due to the shipping crisis but also due to the Chinese heavy exposure to other hard hit sectors such as aviation.

As many countries start coming out of lockdown and the economy restarts, banks will be closely monitoring this recovery.

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