Prospects for New Bank Finance in 2012

Transcription

1 24 th Annual Ship Finance & Investment forum 2011 London 15 th 16 th November 2011 Prospects for New Bank Finance in 2012 presented by Ted Petropoulos HEAD

2 Presentation outline 1. The global ship finance market 2. Forecasting shipping finance requirements 3. What is the current attitude to risk among top bankers? Top Bankers Survey 4. What is the risk appetite for shipping finance by banks? Will there be finance for everyone? 5. The emergence of new entrants, and the potential of Chinese lenders 6. Summary and Conclusions

3 Global ship lending figures (drawn and committed) as of November 2011 are estimated at $500bn. The above includes the offshore support sector but excludes rigs and shipyard finance

4 Although there has been an improvement in data flow from the Far East, the above totals may still underestimate the contribution of Far Eastern and Middle Eastern banks which do not make their figures readily available. The period witnessed an upheaval in ship finance and its bank mix, as well as a significant reduction of loan commitments. Given the total no of vessels in the global fleet of 85,154 (November 2011, Clarkson s Fleet Register) of all types, sizes and ages, the average debt amounts to $5.9m per vessel.

5 In Graph 1, we present the latest Petrofin Bank Research, on the shipping loan portfolio of the top 40 global ship finance banks representing $461.19bn of total loans (92.2% of the total).

6 Graph 1 HSH Nordbank** DnB Nor Commerzbank/Deutsche Schiffsbank/Dresdner Nordea Nord LB RBS* KfW* BNP Paribas BTMU* Credit Suisse* HSBC* DVB Bank of China* ICBC* Lloyds Banking Group Credit Agricole* China Exim* Unicredit SMBC* Danish Ship Finance* Deutsche Shipping - Deutsche Bank* Bremer Landesbank Korea Exim* ING* Danske Bank/Fokus Bank* Citi* ABN Amro (Fortis Bank Nederlands) SEB* Societe General* Natixis NIBC* Standard and Chartererd Swedbank* Helaba* Emporiki Bank National Bank of Greece* Marfin Egnatia Alpha Bank Piraeus Bank* Santander* Bank Lending to Shipping Ship finance based on data up to November 2011 in $bn Loans of leading 40 ship finance banks approximately at $461.19bn Last year s top 40 bank loan portfolios: $449.76bn Most banks are decreasing their exposure. The increase noted is due to the revision primarily of the Chinese portfolios, as more information regarding Chinese ship finance becomes available Source: Petrofin Bank Research November Market estimates ** HSH includes non-core portfolio of $18.2bn approx 33 42

7 Graph 2 Bank Lending to Shipping Ship finance based on data up to November 2011 in $bn Total: $461.19bn $10.78 Additional revised Chinese ship finance exposure* $ $ $ $ Most banks are decreasing their exposure. The increase noted is due to the revision primarily of the Chinese portfolios, as more information regarding Chinese ship finance becomes available an estimated correction on the previous year is of the order of $10.78bn. *Source: Keen Maritime Services Inc Source: Petrofin Bank Research November 2011

8 Last year, the top 40 global shipping bank loans amounted to $449.7bn. Despite its increase shown (to $461.19), the total global portfolio in fact has not risen. Reason: updated Chinese data Chinese ship finance is estimated currently at approx. $118.75bn (Source: Keen Maritime Services Inc.) and this includes both shipyard and ship finance. It is estimated that an average of 45% of the above figure represents ship finance, which stands at $53.3bn.

9 Last year, the top 6 shipping banks, with a combined portfolio of $175.66bn, accounted for approx. 40% of the top 40 shipping finance exposure. This year the top 6 banks share is down to 35.13% (with a combined portfolio of $160bn), thus showing the primarily slowdown trend in the top tier banks. Lastly, European bank exposure accounted for 83.12% of the top 40 total in 2010 and 81.69% up to November 2011.

10 Graph 3 Top 40 banks in terms of geographical position, portfolios and percentage hold of the totals 2010 & 2011 $ $ % $ % Far East $ Total up to November 2010: $ Total up to November 2011: $ $ $ $ Europe $ $ $50.00 $ % $ % $ % $ % $77.68 Europe USA Far East Source: Petrofin Bank Research November

11 European banks Comparison between 2010 and 2011 Graph 4 $ $ Scandinavia 2.9% overall increase in 2010 Other $ $ UK and Ireland France and Belgium $ Holland $ $80.00 $60.00 $53.86 Greece $52.80 Germany $82.58 $81.50 $40.00 $36.70 $35.90 $20.00 $13.00 $17.50 $12.78 $12.16 $20.50 $23.50 $0.00 UK and Ireland France and Belgium Holland Germany Greece Scandinavia Other European

12 2. Forecasting shipping finance requirements Can the demand for newbuilding finance be accommodated?

13 2. Forecasting shipping finance requirements orders cancellations 20% % % 27 conversions 20% % % 27 additional orders 850 Total newbuildings to be financed amounting to 4234 vessels Assuming average unit price of $30m $35m Total required (3 years) $127.02bn $148.19bn Assuming 60% finance $76.32bn $88.91bn Assuming 7% loan runoff on $500bn drawn global portfolios x3 years= $105bn

14 2. Forecasting shipping finance requirements 2nd hand sales From 10/1/2010-9/1/2011 From 12/1/2011-9/11/2011 Number of vessels in 2010 Number of vessels up to Nov 2011 Average price of vessel in 2010 Average price of vessel in 2011 $20.240bn $12.826bn $24.38m $22.74m Source:

15 2. Forecasting shipping finance requirements We project for a further $50bn for a ) second-hand finance b)mergers and acquisitions c) additional net finance due to re-financings d) additional shipping finance raised for shipping purposes based on additional non-shipping assets In summary, we anticipate additional finance requirements of approx. $ bn over the 3-year period

16 2. Forecasting shipping finance requirements Consequently, the total ship finance requirements in excess of loan runoffs of the 3-year period for both newbuildings and organic shipping finance is expected be between 4.26% and 6.87% of global ship finance ($21.3 to $33.9bn) over the 3-year period. The question remains, though, will ship finance banks re-lend the estimated $105bn over to shipping, in the first place?

17 2. Forecasting shipping finance requirements - The above estimate shall be affected: Upwards Downwards - Fresh orders - Committed finance - Second-hand acquisition finance already in place - Mergers and acquisitions - Cancellations - Conversions / postponements

18 2. Forecasting shipping finance requirements The new finance requirements should be assessed in the light of an approximately 7% per annum global loan book run off which is estimated at approx $105bn over the next 3-year period. This run off percentage rises during periods of strong shipping markets with healthy cash flows and reduces at times of market troughs such as at present.

19 2. Forecasting shipping finance requirements - At first sight, therefore, should banks simply re-lend what they shall receive from loan repayments, a substantial proportion of the required newbuilding finance is capable of being met. - The question, though, is will banks re-lend their surplus cash flow into shipping and / or will they expand or contract their overall ship lending capacity?

20 2. Forecasting shipping finance requirements - Bank lending affected by: 1. State and prospects of the global economy (current IMF growth forecast for 2012 of 3.5-4%) 2. Lingering effects of liquidity crisis 3. Need to preserve/build up capital ratios/basel III 4. Prospects for the shipping industry across all sectors 5. Alternative risks/rewards for lending to other sectors 6. Quality of existing loan portfolio / provisions / losses

21 3. What is the current attitude to risk among top bankers? Top Bankers Survey What are the prospects for the world economy, international trade and shipping? Will a recovery begin soon? Is ship finance expected to recover? How much of a problem are loans?

22 3. What is the current attitude to risk among top bankers? Top Bankers Survey Results of the annual Top International Ship Finance Bankers survey, conducted by Petrofin Research in November 2011

23 3. What is the current attitude to risk among top bankers? Top Bankers Survey We posed, between the 10th October and 10 th November, 15 questions to 29 top ship finance bankers, who collectively hold over $301.41bn in shipping loans portfolios, or approx % of the top 50 international bank shipfinance totals ($470bn). The results are as follows:

24 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q1: Do you think that the DRY shipping freight market for 2012 shall be: Bankers responses a) The same as now 24.14% b) Higher 0% c) Lower 72.41% d) Much lower 3.45% Last year s majority response: Lower: 62.07% Do you think that the DRY shipping freight markets for 2012 shall be: 24.14% 72.41% 3.45% a. The same as now b. Higher c. Lower d. Much lower

25 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q2: Do you think that the TANKERS shipping freight markets for 2012 shall be: Bankers responses a) The same as now 51.72% b) Higher 24.14% c) Lower 24.14% d) Much higher Last year s majority response: Higher: 44.83% Do you think that the TANKERS shipping freight markets for 2012 shall be: 51.72% % 24.14% 1 a. The same as now b. Higher c. Lower d. Much higher

26 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q3: Do you think that the CONTAINER shipping freight markets for 2012 shall be Bankers responses a) The same as now 27.59% b) Higher 13.79% c) Lower 58.62% d) Much lower Last year s majority response: The same as now: 44.83% Do you think that the CONTAINER shipping freight markets for 2012 shall be: 27.59% 13.79% 58.62% a. The same as now b. Higher c. Lower d. Much lower

27 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q4: Do you think that the second hand vessel prices for Dry bulk for 2012 shall be: Bankers responses a) The same as now 13.79% b) Higher 0% c) Lower 86.21% d) Much lower 0% Do you think that second hand vessel prices for Dry bulk for 2012 shall be: 13.79% 86.21% a. The same as now b. Higher c. Lower d. Much lower

28 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q5: Do you believe that new vessel deliveries for dry bulk: Bankers responses a) Have peaked 41.38% b) Will peak in % c) Will peak in % d) Will peak later than % Last year s response: Will peak in 2011:71.43% 45.00% % % % % 5. Do you believe that new vessel deliveries for dry bulk: 41.38% 41.38% a. Have peaked b. Will peak in % c. Will peak in % d. Will peak later than 2013

29 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q6: Do you expect China's growth, currently running at about 9.5%, in the next 12 months to Bankers responses a) Stay the same 24.14% b) Rise to 10% p.a. 3.45% c) Rise over 10% p.a. d) Drop to 6-8% p.a % e) Drop below 6% p.a. Last year s majority response: Stay the same: 41.38% Do you expect China's growth currently at about 9.5%, in the next 12 months to: 24.14% a. Stay the same 3.45% b. Rise to 10% c. Rise over 10% 72.41% d. Drop to 6-8% e. Drop below 6%

30 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q7: Do you think that global economic growth over the period will be a) Under 2% 34.48% Bankers responses b) 3-4% 55.17% c) Between 4-5% 10.34% d) Over 5% Last year s majority response: 3-4%: 68.97% Do you think that global economic growth over the period will be: 34.48% 55.17% % a. Under 2% b. 3-4% c. Between 4-5% d. Over 5%

31 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q8: Do you think that European ship finance activity will revive in: a) % Bankers responses b) % c) % d) 2015 and beyond 24.14% 8. Do you think that European ship finance activity will revive in: 45.00% % 34.48% 41.38% % 24.14% % % a b c d and beyond

32 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q9: Do you expect the overall global ship finance loan portfolio (loans + commitments) in 2012 to: Bankers responses a) Increase by over 10% 0% b) Increase by up to 10% 13.79% c) Stay the same 20.69% d) Reduce up to 10% 48.28% e) Reduce by over 10% 17.24% Last year s majority response: 55.17% Increase by up 10% 9. Do you expect the overall global ship finance loan portfolio (loans+commitments) in 2012 to: % % 20.69% 17.24% 1 a. Increase by b. Increase by over 10% up to 10% c. Stay the same d. Reduce up to 10% e. Reduce by over 10%

33 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q10: For your own institution, do you expect your ship finance portfolio (loans + commitments) in 12 months' time to* Bankers responses a) Increase by over 10% 10.34% b) Increase by up to 10% 20.69% c) Stay the same 37.93% d) Reduce up to 10% 6.90% e) Reduce by more than 10% 20.69% Last year s majority response: Stay the same:37.93% % % % % 10. For your own institution, do you expect your ship finance portfolio (loans+commitments) in 12 months' time to: 10.34% a. Increase by over 10% 20.69% b. Increase by up to 10% 37.93% c. Stay the same 6.90% d. Reduce up to 10% 20.69% e. Reduce by more than 10% * Based on 28 responses

34 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q11: Assuming for new shipping loans that loan spreads (currently about bps) over the next 12 months, do you expect loan spreads to? a) Stay the same 44.83% b) Rise 55.17% c) Fall 0% Bankers responses Last year s majority response: Stay the same: 62.07% Assuming for new shipping loans that loan spreads (currently about bps) over the next months, do you expect loan spreads to: 44.83% 55.17% a. Stay the same b. Rise c. Fall

35 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q12: Do you foresee for 2012 non-performing loans to: Bankers responses a) Stay the same 3.45% b) Rise 82.76% c) Fall 0% d) Rise significantly 13.79% Last year s majority response: Stay the same: 48.28% Do you foresee for 2012 non-performing loans to: 82.76% % 3.45% a. Stay the same b. Rise c. Fall d. Rise significantly

36 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q13: Do you foresee Far Eastern banks to develop over the next 3-5 years into: Bankers responses a) Major competition 10.34% b) Medium competition 62.07% c) Minor competition 27.59% 13. Do you foresee Far Eastern banks to develop over the next 3-5 years into: Last year s majority response: Medium contribution: 64.29% % % % a. Major competition b. Medium competition c. Minor competition

37 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q14: Over the next 2-3 years, will ship finance from non-bank sources, i.e. private equity, stock markets, etc. play: Bankers responses a) A similar role 34.48% b) Higher c) Lower 10.34% Last year s majority response: Higher: 53.57% Over the next 2-3 years, will ship finance from non-bank sources, i.e. private equity, stock markets, etc. play 55.17% % % a. A similar role b. Higher c. Lower

38 3. What is the current attitude to risk among top bankers? Top Bankers Survey Q14:. Do you foresee the current shipping crisis (across all sectors) to last for: a) 1 year 13.79% b) 2 years 62.07% c) 3 years 24.14% d) 4 years 0% % % % a. 1 year b. 2 years c. 3 years d. 4 years

39 4. What is the risk appetite for shipping finance by banks? Will there be finance for everyone? - We divided the top 40 banks between banks with a reduced capacity, banks with lending capacity and banks with neutral/unclear policy. - We compared the findings with those of 2009, mid-2010 and November 2010 to determine if the ship finance climate is improving, has remained static, or is worsening. - The results are shown in Graph 5, below:

40 Graph 5 Global ship finance portfolios 2009, Top 40 banks: 462.9bn Mid-2010, Top 40 banks: $436.18bn November 2010, Top 40 banks: $449.76bn November 2011, Top 40 banks: $461.19bn November 2011 November 2011 The reason the portfolio looks increased, although the declining banks are up to 55.65% is that some Chinese banks portfolios were revised upwards according to new data. 6 Banks with lending capacity 53.49% 5 Banks with reduced capacity 46.10% 47.66% 46.55% 4 Banks with neutral/unclear policy/capacity 36.19% % 24.32% 21.28% 30.41% 29.58% % 16.10% 1 DATA based on 2009 DATA mid 2010 DATA Fall 2010 Data Nov 2011 DATA based on 2009 DATA mid 2010 DATA Fall 2010 Data Nov 2011 DATA based on 2009 DATA mid 2010 DATA Fall 2010 DATA Nov 2011

41 4. What is the risk appetite for shipping finance by banks? Will there be finance for everyone? We note that 2 more banks have slipped from neutral to reduced capacity in the last few months. It is encouraging, however, that the same number of banks in the category that is lending to shipping, is increasing its portfolio. The picture that emerges is that there is still not sufficient finance for all, but only for the select few.

42 4. What is the risk appetite for shipping finance by banks? Will there be finance for everyone? Current ship finance is concentrated on the larger private or publicly quoted financially strong companies as banks are very selective. Banks use their limited liquidity sparingly wishing to maintain quality client relationships Non client lending is rare Small owners are now forced to pay unprecedented high margins to secure loans, if available.

43 Ship finance has been adversely affected by 1) Reasons related to shipping 2) Reasons unrelated to shipping

44 Reasons Shipping related reasons: a) Adverse European situation via its effect on European banks b) Excessive supply across all sectors c) Over ordering and forecasts for even larger surpluses d) Lower vessel values breaches of covenants resulting in loan restructures with higher spreads e) Insufficient cashflows to secure both debt repayments and operational requirements

45 Reasons Shipping related reasons: f) Existing bank portfolios: weakening g) Increased provisions and loan recovery situations h) Immediate outlook for shipping recovery: poor i) Bleak shipping capital market prospects j) Low market values of shipping quoted companies

46 Reasons Non - Shipping related reasons: a) Slowdown in global economic growth. However, still 9.5% growth for China. b) Helped by market inefficiencies (slow steaming, long GOA passages, congestion, etc) international trade growth expected in the region of 4-5% in c) Increasing market and consumer uncertainty undermining confidence and growth d) Build up of enormous state and central banks deficits / exposures causing concerns

47 Reasons Non - Shipping related reasons (cont.): e) Deepening banking, liquidity and capital adequacy crisis especially for European banks f) Particular problems for key ship lending banks g) Flight to safety deleveraging process continues h) Investor risk/appetite weakening i) Poor capital markets lack of IPOs

48 5. The emergence of new entrants and the potential of Chinese lenders Ship finance is very much a lender s market. Shipping loan margins and fees are at their highest for over 30 years. The international shipping industry has performed extremely well during the recent crisis i.e. few bankruptcies. However, the industry s cash flow is currently inadequate to service bank debt. Vessel values continue to fall

49 5. The emergence of new entrants and the potential of Chinese lenders Both banks and clients have shown considerable maturity and flexibility in working together through the 2008/2011 crisis. However, after 4 years, patience is running out and more client commitment is required. The quality of shipping loan portfolios is declining, loan loss provisions are and workouts are increasing are the industry in bracing itself for a tough Consequently, it is expected that the shipping industry shall not attract new entrants in 2012 until the market s prospects and banks ability to lend shall rise.

50 5. The emergence of new entrants and the potential of Chinese lenders Where will new lenders come from? Unlikely to come from Europe and the US, where banks are still trying to recover from the recent banking and liquidity crisis. Far eastern banks have come through the crisis unscathed and financially stronger. Liquidity reserves and deposits have been shifting to the Far East.

51 5. The emergence of new entrants and the potential of Chinese lenders Where will new lenders come from? Far Eastern banks loan to deposit ratios allow room for growth, although Chinese central bank has recently put on serious restrictions. Chinese and Korean lenders have started to focus on ship finance as a tool of support for their newbuilding industries.

52 5. The emergence of new entrants and the potential of Chinese lenders What is the capacity of Far Eastern lenders? European banks account for 82% of the top 40 banks, which underlines the importance of the European banking sector and how sensitive ship finance is to the recovery prospects of European banks. Far eastern banks still only account for approx. 17% of the totals. It will take a number of years before the Far East will rise to challenge Western bank dominance; however the process has begun. It is possible that European banks will not give up the dominance without a fight, in line with their collective financial recovery

53 PETROFIN RESEARCH 6. Summary and conclusions