Banks trust Greek shipowners as loans fund ship purchases

Greek shipping companies’ credit expansion has had an average 25 percent yearly rate since 2001, with the total amount of loans reaching $32.35 billion at end-2004, a 95.8 percent rise compared to 2001, according to a recent survey by Petrofin SA regarding local shipping companies’ funding last year. From 2003 to 2004, the increase reached 26.6 percent, from $25.554 billion to $32.55 billion. The rate of this credit expansion is directly related to the development of Greek shipping, as there is an increase in sales and purchases of used ships along with many orders for new vessels, mainly in 2002 and 2003 and fewer in 2004. The fact that just a handful of companies are listed on international stock markets means that their main funding comes from the banking sector. Which banks are leading the way? Traditionally, the lion’s share belongs to foreign institutions, most with a physical presence in Greece. Within 2004, their portfolios increased by 37.67 percent, or $3.814 billion to $13.98 billion. Sailing ahead of the rest is the Royal Bank of Scotland, controlling $6.77 billion, with Deutsche Schiffsbank following at $3.1 billion. In 2004, Greek banks had a portfolio of $6.34 billion, of a total of $32.55 billion, up by 12.45 percent since 2003. That is about half the growth of the funding rate, at 24.22 percent. Last year, the number of domestic banks involved in funding shipping companies was reduced from 15 to 14, after the departure of Geniki Bank. Local banks are represented in the top 10 of domestic shipping funding by the National Bank of Greece (with $1.4 billion) and Alpha Bank (with $1.35 billion). Some distance behind NBG and Alpha, Emporiki follows with a portfolio of $870 million, with Piraeus Bank fourth ($867 million) and Eurobank fifth ($567 million). Higher risk Although Greek banks are now competing on equal terms with foreign ones, the latter benefit more from the shipping sector’s development, showing a higher rate of expansion of their loan portfolios. Yet as Petrofin’s report suggests, this could also be attributed to greater reservations by Greek managers to increase their exposure due to the high prices of ships at the moment. They therefore focus on lending to their best and most reliable clients. As bankers (Greek and foreign) admit, the size of risk in the past was smaller compared to returns, while today the risk is greater, as are the returns. In any case, the banking sector’s degree of trust in Greek shipping is high thanks to the high revenue flow and the considerable personal deposits of shipowners themselves, who are able to pay back previous debts and prepay new funding. After all, loan structure has changed in the last few years. In the past, payments were at low levels in the loan’s first two years and gradually increased. Nowadays, large parts of payments are made in the first years of the loan so that today’s high chartering prices can cover the loan much sooner. As a result, the size of the risk diminishes (provided, of course, that the market remains at its current levels for at least two years) or alternatively the shipowner secures long-term time-chartering contracts guaranteeing a steady flow of income. Several shipowners choose the method of bank funding to purchase newer used vessels or to order new ships, despite the good cash flows they enjoy. This is because they prefer to maintain this flow for the future or for other purposes (e.g. for investments outside shipping). Loan interest rates are low anyway, rendering bank funding a low-cost choice. Furthermore, their ships’ value is much greater than their loan percentage. What lies ahead then for 2005? As Petrofin’s report stresses, the scheduled listing of several Greek companies on the New York Stock Exchange, combined with those already listed, could work against their credit expansion as they will be able to draw funds from the stock market. On top of that, there is a decline in the new ship order rate, which, along with greater reservations by companies about the future, are expected to limit the rate of lending increase in the next couple of years, which can only be considered a healthy development.