1. Greek Ocean Going Shipping Debt Finance & Greek Banks
Challenges and Prospects
12/12/2013
Krikor Tzanikian  

2. Current Situation
The overall sentiment that shipping is on a verge of a long-awaited rebound, coupled with historically attractive ship prices, has propelled a counter-cyclical investment mood amongst Greek shipowners.
In theory, ship lending should be closely related, among others, to the patterns of the shipping markets and to the investment appetite of the ship owning community.
Greek banks, maybe for the first time since their involvement in ship lending, have, so far, diverged from this theory.
Ship lending from Greek banks, in absolute numbers, is contracting every year for the past 5 years.
This paradigm shift is a result of the continuing banking crisis/consolidation in Greece and is not attributed to fundamental changes in how Greek banks perceive shipping risk.

3. Traditional/Historical Ship Lending Terms/Criteria
Since the late 90s, and especially during the 2000s, Greek banks rapidly invested in shipping projects. The aggregate loan portfolio increased c. 200% in a decade ( ).
Even so, the shipping portfolio of the major Greek banks represented only a small percentage of their overall balance sheet, usually between 1% and 5%.
Name lending has been key;
Lending based on vessel’s cash flow generation and debt repayment capacity;
Vessel’s estimated remaining working life, not to exceed 25 years;
For lending to privately held groups, guarantees or similar support from the principals were usually required;
Financing up to 70% of current vessel value. Larger percentage financing has been observed, mainly in relation to young tonnage;
All facilities included a Minimum Value Clause (MVC), usually 120%/125%;
First Preferred Mortgages with an assignment of Freight revenues and Insurance policies, covering at least Hull and Machinery, War Risks, Protection & Indemnity and MII/MAP.

4. Emphasis shift
Credit criteria have remained unchanged, but emphasis has now shifted away from building up balance sheet.
Preservation of capital (debt run-off, restructurings)
Enhancement of profitability (spread increases, cross-selling)
Liquidity constraints (focus lies on widening depositary base)

5. New banking environment in Greece
In 2011 there were 13 Greek banks financing Greek shipping.
Today this number has dropped to 5, of which 4 hold more than 97% of total outstandings.
Amongst these 4 only a few are sill active in new shipping business.
It comes to prove right all those voices which, in the past, advocated the establishment of banking relationships with more than one bank!
The consolidation in Greek banking is expected to set the tone for the future of Greek shipping finance.
We expect the emphasis shift of Greek banks to continue, at least until we see a normalization of the Greek economy and a stabilization of the banks’ fundamentals.

6. Impact on Greek Shipping and Future Sources of Finance
Greek banks account for c. 19% of the total lending to Greek Shipping (as at end 2012), less if we exclude lending to coastal/passenger shipping companies. Accordingly more than 81% is attributed to foreign banks.
Foreign banks also face difficulties, mainly attributed to past overlending, which limit their current activities.
Therefore, in aggregate, traditional banks (both domestic and international) lending to Greek shipping are contracting their lending exposure.
On the other hand, we notice a continuing investment surge from Greek owners in both newbuildings or second-hand units.
It is interesting to note that during 2012, more vessels were sold than during 2011 and almost the same as during However the overall money spent was 40% less than during 2010 and 25% less than during 2011.

7. Impact on Greek Shipping and Future Sources of Finance (2)
Even if we account for the drop in vessel values, where does the money come from?
Some bank lending (mainly provided to listed companies and large private shipping groups);
Non-traditional lending channels (non-traditional banks, bonds, mezzanine financing, hedge funds);
Equity funds;
Burning of accumulated “fat”.

8. Opportunities and Challenges for Greek Banks
Greek banks can and will play a key role to Greek Shipping finance, however not in the short term:
The recent bank consolidation has not been concluded operationally;
It is possible that the consolidation of the various shipping portfolios may affect the lending capabilities to certain shipowners (“one obligor” rule);
The new portfolio review exercise (Blackrock II) was submitted on Tuesday and we are in anticipation of its assessment by the regulatory authorities.
Opportunities for Greek banks do exist:
Leading position of Greek shipping in the industry,
Low point of the cycle in most segments,
Lack of competition (both domestic and international),
Possibility for sizeable profits,
Diversification of domestic portfolio,
Substantial room for ancillary business.

9. Thank You Eurobank Ergasias SA - Shipping
19 years of presence in shipping.
Loan portfolio close to a billion USD.
Exclusive portfolio of Greek shipping companies.
Mostly medium-sized companies.
Portfolio is self-funded.
Consistently profitable operation.
Thank You