German Banks May Need More Provisions on Shipping Loans

By MarEx 2013-07-29 11:49:00

* Bafin not happy with some banks' results in shipping probe

* German banks have 100 bln euros of ship loans on books

* No fast recovery of shipping sector expected

* German banks have 18.5 bln euros exposure to U.S. munis

(Reuters) - Some German banks have not done enough to tackle their exposure to the struggling shipping industry, the country's financial regulator said on Monday, signalling some lenders may need to make further provisions to cover bad loans.

Bafin said on Monday German banks still needed to do more work to clean up their balance sheets and that it was particularly unhappy with results for some financial institutions from a review of shipping loans.

It did not name any of the institutions, or detail its concerns and potential remedies.

Bafin is due to hand over the supervision of financial institutions to the European Central Bank and is keen that German banks get their houses in order, with the central bank due to assess lenders' assets before it takes on the new role.

German banks still have roughly 100 billion euros ($133 billion) of shipping loans on their books. Some of them are among the world's largest ship financiers and two - HSH Nordbank and Commerzbank - had to be bailed out during the financial crisis.

The shipping industry has been hit hard by a faltering global economy and also by overcapacity as a result of new ships ordered during the pre-crisis boom now coming on to the market.

According to a source familiar with the Bafin probe, discussions are still ongoing with some lenders whether writedowns on non-performing loan portfolios are sufficient.

Commerzbank earlier this month said it expects loan loss provisions for its 19 billion euros in ship loans - about 4 billion of which are classified as non-performing - to remain stable in 2013 at high levels.

HSH, which has a shipping exposure of 27 billion euros, last year raised loan loss provisions by about 70 percent to 1.2 billion, while provisions at peer NordLB - which has 18 billion euros in ship loans on its books - tripled to 598 million euros.

A speedy rebound of the sector is regarded as unlikely. "We see a bottoming out in 2013 and predict a slight recovery in charter rates in 2014," Wolfgang Driese, CEO of DVB Bank , a German bank specialising in ship finance, told Reuters last month.

Separately, Bafin said German banks and insurers have 18.5 billion euros of exposure to municipalities and other communal organisations in the United States.

German lenders' financial ties to U.S. municipalities have been declining with the volume of loans down 23 percent in the three years through March 2013.

The regulator has scrutinised exposure of German banks and insurers after the U.S. city of Detroit said last month it would default on some of its debt.

Reporting by Arno Schuetze and Alexander Hübner; Editing by Mark Potter