Non-bank Financing Playing a Bigger Part in Shipping’s Growth

July 25, 2016,

Private equity, whether it be from investors or out of the shipowner’s pocket, is playing a bigger part in the expansion of the world fleet concludes leading Greek shipping analyst Petrofin Research based on the findings of its latest survey of the top 40 banks lending to global shipping.

The evidence is clear Ted Petropoulos, head of Petrofin Research, told Seatrade Maritime News: “Our survey points to the growth of the world fleet being achieved with non-bank resources for the time-being.”

The Petrofin survey shows that at the beginning of July the 40 leading ship finance banks had a total $397.84bn exposure to shipping. This is almost identical to the level at the same time in 12 months ago, though in the period the global fleet has expanded from 89,676 to 91,526 vessels, suggesting non-bank finance sources are playing a bigger part in this growth.

“It is fair to conclude bank ship finance in relation to the world fleet has been contracting as a source of shipping funding. Of course, this isn’t something new, as Petrofin’s data supports the view bank ship finance in relation to the world fleet has been contracting as a source of shipping funding for the past eight years,” says Athens-based Petrofin.

Indications are this will not change, at least in the short-term. Petrofin notes that when looking at Clarkson’s Intelligence, it is expected, the world fleet shall continue to grow at a faster pace than ship finance by banks, and, says Petrofin, ” there will be further declines in the importance of banking related ship finance as opposed to other forms of finance and investment / equity”.

“Current shipping conditions are not attractive to shipping banks, as all sectors are displaying signs of pressure in vessel values and earnings due to overbuilding, existing surpluses and large orderbooks,” says Petrofin.

In addition, current financial conditions are also not conducive to more ship lending. Indeed, it is fair to say that, on a global basis, lending has slowed down substantially post 2008 as banks try to downsize and as bank regulations and supervision, like ECB, Basel III, have increased.

“Unable to increase their capital base, banks are forced to restrict their lending and choose to lend among the best risk / reward industries. Currently, shipfinance is not a leading contender for loans. The need to support their own local shipping has been a strong motive underlying the expansion of the Far Eastern banks. Their national policies are in tune with local bank interests and this has provided a useful solution to a number of owners with local newbuilding orders seeking finance,” says Petrofin.

Petrofin points out the collapse of the KG system has accelerated the departure of many German banks, though they still support the owners in heir ‘home base’, but have reduced finance to owners from other countries.

However, it will be a different scene. “As the European domination further weakens Far Eastern and other nationality of banks will fill the vacuum. We envisage new banks shall also join shipping, aiming for the small to medium owners. The risk/reward of ship finance is changing and will become all too apparent when the recovery prospects for shipping will solidify,” says Petrofin.

Petrofin’s data also to the increasing presence of non-banking finance institutions, often the only finance alternative for owners, as well as the development of niche ship finance in the Persian Gulf, Singapore and other local areas. The special position of Chinese ship leasing companies should be mentioned as a popular means of finance offered by Chinese leasing companies who are invariably owned or supported by local banks.

Overall, for ship finance lending to rise, an improvement in shipping market conditions is necessary,” Petrofin concluded. (Ast)

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