Nordea Bank AB (NDA) and DNB ASA (DNB), two of the world’s largest shipping lenders, are seeing signs of an end to the maritime industry’s five-year slump as bets grow on a recovery in sea-borne trade. Loan losses at Nordea’s shipping unit slid 15 percent in the second quarter from the first three months, hitting the lowest ratio since the third quarter of 2011. Operating profit grew to a seven-quarter high and loan losses at the largest Nordic bank’s maritime business will probably drop further, Nordea Chief Executive Officer Christian Clausen said.
“They’re now coming down, they’re not that high,” Clausen said in a telephone interview from Stockholm. “I don’t think loan losses in shipping are an issue anymore.” The shipping industry is seeking a revival from worst market since the 1970s amid slumping freight rates and an overcapacity of ships. Shipping companies have been struggling to service debts, triggering loan losses at banks such as Nordea and DNB, as well as their German competitors HSH Nordbank AG, Commerzbank AG (CBK) and Norddeutsche Landesbank Girozentrale.
DNB, Nordea’s Norwegian rival and the world’s second biggest shipping bank, saw loan losses at its shipping, offshore and logistics division fall 43 percent to 198 million kroner ($33 million) in the second quarter from the first three months, the lowest in four quarters, according to its website. ‘Very Tough’ “2013 will be a very tough year and 2014 will also be quite tough in some industries, but with a diversified portfolio we should still be able to have a good return,” Kristin Holth, global head of shipping, offshore and logistics at DNB, said by phone on July 23. DNB has forecast loan loss provisions in shipping of 1 billion kroner to 1.5 billion kroner this year, compared with 940 million kroner in 2012, Holth said, declining to give a forecast for 2014.
The unit had provisions of 545 million kroner in the first six months of this year. Nordea, the world’s fourth-largest shipping bank, said in July that for the tanker and dry cargo market, 2013 will be the last year of “large deliveries of new tonnage, which should have a stabilizing effect on these market segments in the future.” Nordea estimates its shipping portfolio is likely to “go up slightly” in dollar terms in coming quarters, Clausen said. Loyalty Rewards Nordea and DNB now stand to profit after sticking with an industry that other banks abandoned at the height of the shipping crisis.
Commerzbank, the world’s third-largest maritime lender, said in June last year it would close its ship finance unit to focus on “business that is sustainably profitable.” Other German lenders have also struggled. HSH Nordbank, the world’s largest shipping lender, said June 7 provisions in the first quarter more than tripled. Nordic banks have fared better because their portfolios are more diversified than those of their German peers and more focused on industrial shipping and offshore than on tankers, dry bulk and container shipping. Their individual exposures to different segments are also smaller than at their German peers, helping them absorb individual client losses.
The lenders are also more focused on oil-rich Norway, where a $750 billion wealth fund has shielded the economy from the debt crisis raging further south. At DNB, container shipping and dry bulk make up 14 percent and 12 percent of the portfolio, respectively, while tankers account for 9 percent. The rest includes offshore, logistics, chemical and products, cruise and roll-on roll-off vessels.
Diversified Gains In Nordea’s shipping portfolio last year, drilling rigs, supply vessels and oil services accounted for 25 percent, while container and dry cargo combined for 11 percent. Crude tankers made up 11 percent of the book and chemical and product tankers accounted for 13 percent. Container ships make up more than 33 percent of Commerzbank’s 18 billion-euro shipping loan portfolio while dry bulk vessels, which carry freight such as coal, steel or grain, comprise about 20 percent and tankers 25 percent.
Commerzbank has slumped 39 percent in Frankfurt trading this year, and traded 3.5 percent lower at 6.571 euros as of 11:21 a.m. local time today. Nordea has jumped 34 percent since the end of 2012, and lost 0.1 percent to 83 kronor today. DNB’s shares have advanced 38 percent this year, and traded 0.6 percent lower at 97.05 Norwegian kroner in Oslo trading today. Not all corners of the shipping market are poised for a recovery, according to Holth.
DNB is “not very optimistic” about crude tankers, where it will “take time before we see any upturn as there are no signs of rates going up shortly,” she said. Though there have been “positive signs” in dry bulk, it probably “will move sideways.” Yet the signs of recovery there are elsewhere in the industry have started to attract more lenders. “We welcome that as we need more banks to be able to place the financing, the refinancing and new financing and thereby be able to syndicate loans,” Holth said. “We have seen a somewhat increased appetite.”