Shipping Crisis a Threat to German Banks

by Ship & Bunker News Team
Friday February 22, 2013

The shipping industry crisis represents a significant risk to the German banking industry, and, despite low interest rates, banks must focus on making sure loans to shipping companies are solid, Andreas Dombret, an executive board member at Deutsche Bundesbank said in a recent speech.

Low freight rate and overcapacity in the shipping market has pushed many shipping funds into negative territory, and some have filed for insolvency, he said, hurting the portfolios of banks involved in shipping finance.

Dombret said loans issued by major credit providers in the sector total just over €100 billion ($132 billion).

"The Bundesbank has been assessing and evaluating the crisis from a broader perspective with a keen eye on the stability of the entire financial system," he said.

"Up until now, robust economic activity has helped the German banking system to cope with the pressures from problem business areas such as the financing of shipping.

"It would be wrong to yield now to the temptation presented by the current low-interest rate environment to postpone cleaning up the balance sheets."

Dombret said the banking industry must consider risks and returns and make sure shipping finance is transparent for capital providers and other parties, something that could potentially encourage new financing sources outside of conventional bank lending.

German's Commerzbank said in June it would wind up its ship finance unit, and officials at another German bank, HSH Nordbank, have expressed concern about the "increasingly critical state" of the shipping industry.