By Markus Wenker
The ship finance landscape has changed fundamentally over the past decade since the turmoil in the global financial markets and the beginning of the shipping crisis. Several then-industry leading banks have exited or significantly scaled down their shipping activities amid soaring losses.
As a result, banking regulation has become tighter, putting even more pressure on the remaining active banks to focus on existing relationships and larger companies with strong balance sheets, thereby raising the bar for many small and medium-sized companies to access cost-efficient bank finance. At the same time, new banks have entered the market and, in parallel, an active market for alternative but more expensive debt finance offered by debt funds has emerged. The ship finance market therefore became more fragmented, especially in terms of offering, which is now more versatile for the owners.
The implication of this more diverse lender mix is that shipowners now not only have to more carefully choose the type of financing that suits their needs, but to consciously decide on the level of debt that is within their individual comfort zone and risk appetite as a wide range of financing from low to very high leverage is available. In times where the industry continues to suffer from low returns and a market characterised by volatility and uncertainty, financing becomes more expensive, and the equity investment is at increased risk, unless there is secure cash flow through period employments to financially strong counterparties or liquidity reserves set aside to cover potential shortfalls.
With Hellenic Bank at the helm, Cypriot banks have acted upon this market opportunity, and put Cyprus on the European ship finance map over the last few years. The expansion into ship finance serves Cypriot lenders well as it offers a unique proposition: on one hand, the addition of ship finance complements the government’s efforts to expand and elevates Cyprus as a shipping cluster with the associated positive impact on the local economy; and on the other it helps banks to diversify their portfolios and reduce their dependency on the local economy, benefitting both depositors and shareholders.
Markus Wenker, Head of Ship Finance, Hellenic Bank Public Company Limited