Worst Shipping Crisis Ever Near End as Nordea Sees Loan Growth

Nordea Bank AB (NDA), Scandinavia’s biggest lender, said the shipping industry will next year begin to recover from its worst crisis on record as global demand picks up and freight rates and asset prices recover.

While “2013 will be another tough year in most segments, sometime in 2014 we’ll probably start seeing a gradual improvement in the broader market,” Hans Kjelsrud, the Oslo-based head of Nordea’s shipping unit, said in a Sept. 17 telephone interview. “Once we get through this year, deliveries of new ships will be a lot lower. We believe 2014 will be better than 2013 and that 2015 will be better than 2014.”

Nordea, the world’s fifth-biggest shipping bank, has remained loyal to an industry suffering from its worst-ever slump as other European banks, including Commerzbank AG, have pulled out. The shipping industry, now in its fifth year of crisis, has suffered from slumping demand and overcapacity in the wake of Europe’s debt crisis and from low freight rates, high fuel prices and slumping asset values.

The ClarkSea Index, a measure of industry-wide earnings, averaged $9,187 a day this year, the lowest since 1990, according to shipbroker Clarkson Plc. The fleets of dry-bulk carriers and supertankers are both the most oversupplied since the 1980s, according to Clarkson and Fearnley Consultants AS, a maritime research company in Oslo. There are now signs of improvement as the global economy picks up, Kjelsrud said.

Ship Values

“What we’re seeing right now is that the U.S. seems to be firming up and while there were some uncertainties about China earlier in the year, it seems to be doing OK,” Kjelsrud said. “Europe seems to at least have hit the bottom.”

Global economic growth “obviously increases the volumes of cargo being shipped and historically, if freight rates start to firm up and increase, that will also at some point drive ship values,” Kjelsrud said.

Ship values rose 2.9 percent in August, the biggest increase since February 2011, according to a Clarkson index of second-hand prices across all vessels. The gauge is heading for its first annual gain since 2007.

The price of a five-year-old Capesize, the largest type of bulk carrier, rose 14 percent to $33.5 million this year, heading for the first gain since 2010, according to the Baltic Exchange. Values for such ships collapsed from as much as $153.8 million in 2008 to $29.5 million early this year, their lowest price in at least 10 years.

Loan Losses

“What we have seen is that newbuilding prices have firmed up a little bit in the last three to six months and at some point that will probably also spill over to the ship values, especially for modern ships,” Kjelsrud said. “For the time being and based on what we have seen, second-hand values seem to have bottomed out in most major segments.”

An improvement in asset values helps limit credit losses at shipping banks. Loan losses at Nordea’s shipping unit slid 15 percent in the second quarter from the first, hitting the lowest ratio since the third quarter of 2011. Operating profit grew to a seven-quarter high and loan losses at the bank’s maritime business will probably drop further, Nordea Chief Executive Officer Christian Clausen said in July.

DNB ASA (DNB), the world’s third-biggest shipping bank, reported second-quarter loan losses of 198 million kroner ($34 million) at its shipping, offshore and logistics division. That was a 43 percent drop from the first three months of the year and the lowest in four quarters, according to its website.

The improvement has resulted in banks returning to the ship financing market. Nordea has “started to see more activity on the lending side from shipping banks,” Kjelsrud said, adding that there is “more liquidity out there now.” That is vital for the development of ship prices, he said.

“Without financing, it’s very hard to have a well-functioning sale and purchase market,” Kjelsrud said. “That’s important in terms of asset values. In order to buy a ship you need financing and when that dries up the activity in the sale and purchase market also dries up.”

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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