Challenging bank conditions have been a significant “headwind” in the global ship finance market during 2023. In its latest annual report, Petrofin Research said that ““the global banking industry continued to face many challenges in 2023. The geopolitical challenges of the Ukraine war, increased sanctions and higher energy prices, the Houthi Red Sea attacks and the Israeli Hamas conflict added further complications. Unfortunately, none of the above appear to be solvable in the near future. The above led to increased trade dislocation. Nevertheless, global GDP grew by 3.2% in 2023 and is expected to grow at a similar pace in 2024, but in terms of ton mile demand, analysts show a much higher increase of 4.1% in 2024 and 5% forecasted in 2025. The tanker market continued its strong performance, supported by slow fleet growth in 2023 and similarly in 2024-25, as well as buoyant ton mile demand. Vessel prices remained high and earnings too. In contrast, in 2023 dry bulk had a weaker charter market in 2023 with lower earnings but rising prices by 13% yoy, in anticipation of better markets in 2024-2025. The offshore sector and the car carrying sector continued their strong performance both in earnings and vessel values, whilst the remainder markets were rather mixed. (Clarkson’s) The overall Clarkson’s second hand price index grew moderately from 146 to 149 yoy in 2023 but has since jumped to 173 as of 1 st June 2024”.
The Petrofin Index for Global Ship Finance which commenced at 100 in 2008, has shown a modest increase to 62 as of end 2023 from 61 in 2022. Top 40 Banks’ lending to shipping in 2023 stands at $284.27bn, compared to $282.89bn in 2022. This reverses slightly the downward trend since 2011. Asian and Australian banks (APAC) show significant growth, especially their market share, which has increased from 43% to 45%. In terms of actual exposure their portfolio amounts to US$127.94bn compared to US$120.83bn in 2022. The USA remains range bound, whilst Europe has shown a marginal decrease. Europe still represents the biggest ship finance area at 50% of the top 40 banks, lending US$141bn.
Meanwhile, Greek banks showed a significant yoy growth of 13% from US$13bn in 2022 to US$15bn in 2023. Greece’s market share increased from 4.6% to 5.2%. French and Belgian and Other European banks portfolios also showed rises. According to Petrofin Research, the total global bank lending of all banks, including local banks, is approaching US$375bn, i.e. approx. 62% of all types of the global ship finance total. Last year this percentage stood at 67%. We can provide a cautious, indicative figure for global ship finance, including all forms of lending – leasing, export finance and alternative providers – of approx. US$600bn. Interesting tovnote that Clarkson’s estimate the global fleet value at US$1.5trn.
“Poseidon Principles now incorporates 35 signatories, which represent US$300bn in shipping finance. ESG considerations and bank strategies continue to favour bank ship lending towards eco vessels. There is increasing evidence that sustainability has become more prevalent in bank lending. Despite good efforts towards decarbonisation, there still remain doubts as to the required technology andvits cost to meet the zero-emission target eventually. Such concerns are shared amongst all stakeholders including lenders”, the report said.
According to the report, “on the whole, bank lending conditions were challenging as in many sectors vessel earnings did not rise as much as vessel prices, thus rendering ship finance cash flows to be unsupportive. Banks on the whole resisted the urge to lend more than 60% on an LTV basis without additional supporting factors and, furthermore, faced increased competition and eroding loan margins. Thus, it was not a case of whether banks had the capacity to lend, but whether there were sufficient lending opportunities. Many banks concluded numerous loans only to find themselves on similar footings at year end, due to loan repayments/prepayments on account of high interest rates. On the whole, the global banking sector managed to show a modest rise in ship finance as of end 2023 which represented a year of overall stability, whilst loan provisions were kept commendably low”.
Meanwhile, “the unwillingness of most banks to provide higher LTVs led to the rapid growth of SLB transactions in China, Korea and Japan, as well as all forms of alternative lending, spearheaded by Funds. The increase of newbuilding orders despite rising newbuilding prices, especially in the LPG, tanker, LNG, Car Carriers and Container sectors, was increasingly financed by leasing and not bank finance. The main reason for the above is the higher LTV offered by lessors and Funds of 70-75% or higher, especially for large and financially strong repeat clients”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide