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Australia's CBA steps up ship lending despite sector downturn

Commonwealth Bank of Australia (CBA) is stepping up lending in shipping, a top bank official said, just as European rivals cut capital exposure to the seaborne sector.

Shipping has weighed heavily on its financiers, with the industry facing one of its worst downturns in decades.

Ship owners ordered large numbers of new vessels between 2007 and 2009, just as the global economy sank into its biggest crisis since the 1930s.

CBA, Australia's top lender by market value, is one of a few banks looking to expand its presence in shipping as it scents opportunities for business.

"We don't have any legacy portfolio of non-performing loans and we do not have any impediment in that regard," said Nick Fletcher, CBA's global head of structured asset finance.

"We are also mindful of developing a portfolio where the scale does not become unwieldy in the way typically the European banks have been overweight in exposure."

Several European banks including Britain's Royal Bank of Scotland, Lloyds and Germany's HSH are seeking drastic reductions to their shipping loan portfolios as they clean up their balance sheets to become less risky while regulators demand that they hold more capital.

CBA, which started with $400 million in ship finance lending in 2011, has boosted its shipping exposure to $2.25 billion. Fletcher said transactions were "closing on a fairly frequent basis".

"We have set a portfolio objective to have about $3.5 billion worth of ship finance exposure and we think that is quite achievable through 2015. We are not growing for growth's sake," he said in an interview.

"We are looking to develop the portfolio in line with our risk appetite and the selective segments in shipping which we wish to support."

Fletcher said the bank had a preference for smaller deals in shipping and clients included international shipping groups Teekay and Costamare as well as offshore marine firm Bourbon Offshore.

"We are very well capitalised and have a very strong regulatory environment in Australia with no issue with liquidity. So when you feed all these elements, our entrance to the shipping market is well timed," he said.

Ship finance volumes reached $6.82 billion in the third quarter, from $5.94 billion in the second quarter - still far off the over $11 billion in the third quarter of 2008, Thomson Reuters LPC data showed.

"There will continue to be uncertainty in the shipping sector over the order book and the overhang of poorly performing bank portfolios. So while banks will start looking at the market, many will not be doing it with the same enthusiasm as we see in aircraft finance," Fletcher said.

Fitch Ratings said losses from shipping portfolios are likely to remain high in 2014, particularly for German banks.

"Many banks are trying to sell shipping portfolios or wind down exposures," Fitch said last week. "Our ratings already factor in the shipping crisis lasting until at least end-2014."

CBA's expansion in shipping is part of a broader global push, which includes commodities financing. The bank's clients there include agribusiness group Cargill and commodity house Trafigura.

"We see a good combination with what we are doing in the natural resources space and what we are doing in the transport sector," Fletcher said.
Source: Reuters (By Jonathan Saul)