DNB ASA (DNB), Norway’s largest bank, said 2014 will remain “challenging” for the shipping industry as weak demand and vessel oversupply combine to keep freight rates near record lows for a sixth year.
While rates in the dry bulk segment have “improved significantly” and DNB sees “more light glimpses than the opposite right now,” next year will remain tough for shipping companies, the Norwegian bank’s Chief Executive Officer, Rune Bjerke, said in an interview in Oslo today.
“We believe the three shipping segments of tankers, dry bulk and containers to be in a challenging situation even in 2014, despite the fact that it’s somewhat more positive now than it was in the beginning of this year,” he said.
Shipping banks such as DNB, Stockholm-based Nordea Bank AB and Germany’s HSH Nordbank AG and Norddeutsche Landesbank Girozentrale have suffered loan losses at their shipping units as the industry suffers its worst crisis since World War II. Low demand in the wake of Europe’s debt crisis, as well as an oversupply of vessels, have put pressure on freight rates, leaving many shipping companies unable to service their debts.
Impairments of loans and guarantees at DNB’s Shipping, Offshore and Logistics unit stood at 225 million kroner ($38.2 million) in the third quarter, down from 293 million kroner a year earlier. Impairments climbed from 198 million kroner in the second quarter because of “a minor negative effect on the individual loan provisions,” Bjerke said.
The bank today reported third-quarter group profit that increased 38 percent to 4.88 billion kroner after net interest income increased and loan losses declined.
DNB, which has sought to reduce shipping’s share of its total lending, has now reached “the exposure level we have targeted,” Bjerke said. “Right now, it’s about 7 percent of total exposure at default and that’s the exposure we believe can be sustained at a profitable level, and also the level we need to have to be a leading shipping bank globally.”
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