Chinese banks becoming global leaders in shipfinancing

[cirr]

Chinese banks becoming global leaders in shipfinancing

By Cecily Liu (China Daily)

Updated: 2016-06-13 08:10

Two people pass by the branch of Industrial & Commercial Bank of China (ICBC) in Paris, France. [PaulBoursier/For China Daily]

As Western banks withdraw, Chinese counterparts, with abundant capital, are providing new loans

Chinese lenders are fast becoming global leaders in ship financing, while Western banks are reducing or exiting their shipping loan portfolios. That disengagement is due to increasingly strict capital requirement regulations being enforced as the world's shipping industry faces its worst downturn in three decades.

In 2014, the last year for which statistics are available, three out of 15 of the world's largest shipping lenders were Chinese banks, together providing $45.3 billion of financing. That is just under 20 percent of the $258 billion total shipping finance debt of the top 15 lenders' combined, according the US-based intelligence firm Marine Money.

In 2007, before the financial crisis and consequent shipping market downturn, none of the Chinese banks made the global top 15 shipping lenders.

The three banks are Bank of China, the Export-Import Bank of China, and China Development Bank, ranking sixth, eighth and 15th, providing loan volumes of $18.5 billion, $15.8 billion and $11 billion respectively.

Industry insiders cite Chinese lenders' abundant capital and long-term perspective as key reasons behind their emergence, adding that they have entered the shipping finance market at an opportune time because ship asset valuations are already at a historical low, hence risks for a further fall in value are minimized.

"Chinese banks' increasing level of activity is very helpful for the entire shipping industry's dynamics in a difficult time," said Nigel Thomas, a partner at the law firm Watson Farley &Williams, who specializes in shipping finance.

"Despite the current low valuation on shipping assets, over the long term at least some sectors of shipping are expected to generate solid returns. Currently, many shipping assets, which are fundamentally sound from a longer-term perspective, are competing for sources of financing, so it is a good opportunity for Chinese banks to select more solid shipping assets to finance."

The global shipping industry has suffered from severely slashed commodity demand in recent years. The Baltic Dry Bulk Index, the most common measure of shipping activity levels, touched 290 points in February, marking the lowest level since records began in 1985. In May 2008, the index reached a peak of 11,793 points.

As of March 1, 2016, the global order book for new vessels totaled 4,461 ships of 283.2 million deadweight tons, down 11 percent year-on-year.

Meanwhile, banks globally face increasingly strict capital requirements. Under Basel III, the latest rules for improving regulation, supervision and risk management, for example, banks are required to set aside more capital for shipping finance compared with other types of financing such as property loans or business loans, meaning many Western banks now view shipping finance to be unprofitable.

An ICBC branch in Hong Kong. In October, ICBC Financial Leasing announced it would provide 18 tankers to BP Shipping over the next 10 years, a deal estimated to be worth $869 million. [Paul Boursier/For ChinaDaily]

Within such a context, Chinese banks were able to secure deals with some of the world's largest ship owners, such as Mediterranean Shipping Co, BP Shipping and Bourbon, all of which are considered the most attractive borrowers because their size means the risk of loan default is almost zero.

A recent example of a Chinese finance deal is ICBC Financial Leasing providing 18 tankers to BP Shipping over the next 10 years, a transaction announced in October, estimated to be worth $869 million.

"Shipping finance entities compete with each other on three aspects, which are volume, pricing and structure of deal, and ICBC was able to outperform other lenders on all three levels," said Dmitri Mikhno, director of London-based Clarksons Platou Debt & Leasing Solutions.

Alun Hatfield, managing director of Clarksons, added that Chinese banks' more recent entry into the leasing business means they have more capacity to take on new loans because their capital is not tied to existing shipping portfolios. In comparison, many Western banks already have billions of dollars of shipping loan portfolios on their books, which makes further lending difficult.

In addition to financing new vessels, some experts believe opportunities exist for Chinese banks to purchase existing shipping loan portfolios of Western banks that are looking to exit ship financing to free up capital.

Sellers in this market are plenty. Lloyds Banking Group exited the shipping market in 2014 when it sold the last $500 million of loans from its ship finance portfolio. That same year, Commerzbank sold a shipping portfolio worth 160 million euros ($182 million), and in 2015, Reuters reported that RBS put up $5 billion of shipping assets for sale.

Christoforos Bisbikos, a Hong Kong-based partner at shipping finance experts WFW, said buying existing loans allows Chinese banks to get a good assessment of the credibility of shipowners. "Buying existing loan portfolios is the best credit check you can get, because you can get trade records of the ship owners that could go back decades, so it reduces the risks of lending to those owners."

Harry Theochari, global head of transport at London-based law firm Norton Rose Fulbright, said that the downside risks for Chinese banks to own these shipping portfolios is smaller than for Western banks, because they would probably buy these portfolios at a discount to market value.

Andreas Povlsen, founder and CEO of the London-based maritime finance firm Breakwater Capital, added that Chinese banks should make sure that their financing activities do not distort the market.

"It is important that Chinese banks study the quality and specification of the ships they finance carefully. They should focus on efficient procedures to monitor the assets and effectuate the closing of the deals, and make sure the deals are structured appropriately," Povlsen said.

http://www.chinadaily.com.cn/business/2016-06/13/content_25687493.htm

 

[ahojunk]

When China sneezes, Asia & Australia catch a cold....

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China Now Rivals U.S., Europe as Growth Engine for Asia Exports

• Asian currency swings also increasingly influenced by China
• But region’s bond markets still driven by moves in U.S.

China is now an equal or even bigger driver of export growth in neighboring economies than the U.S. and E.U combined, marking a significant shift in the economic pecking order since the 2008 global financial crisis.

That’s according to research by Deutsche Bank AG economists who weighed up the influence of the U.S. and China over the rest of Asia through the prism of export growth, as well as the currency and bond markets.

In Taiwan and Indonesia, for example, the growth of China’s gross domestic product dominates the U.S. and European Union’s as a source of export demand. In other economies, the trading giants are equally important.

“This is noticeably different from the pre-crisis years when China was much less important –- bordering on irrelevance -– as an engine of growth in the region," Deutsche analysts led by Asia-Pacific Chief Economist Michael Spencer wrote in a note.

After a rocky start to the year, China has been aided in its growth prospects by a record surge in credit in the first quarter. Key indicators for May are expected to show that the economy is continuing to find its footing and growth is on track to hit the Communist Party’s goal of 6.5 percent to 7 percent for 2016.

IMF Upgrades

The International Monetary Fund in April upgraded its China growth forecasts by 0.2 percentage point for this year and next, following signs of “resilient domestic demand” and growth in services that offset weakness in manufacturing.

Beyond the pace of GDP growth, China’s currency gyrations are also increasingly important across the region. While the dollar still drives volatility in most Asian currencies, the yuan is as least as important for fluctuations in the ringgit and won and is growing in significance for other exchange rates, except the peso.

“Asia is far from being a ‘yuan bloc’, but idiosyncratic shocks to the yuan cannot be ignored,” according to the Deutsche analysts.

The People’s Bank of China surprised traders this week by setting the reference rate at weaker-than-expected levels, helping send the currency to its biggest declines in four months versus a trade-weighted basket that includes the yen and the euro.

More Predictable


The rate’s fixing had become more predictable since early February after the PBOC pledged greater transparency and the yuan increasingly tracked moves in the dollar against major currencies. That was after a sudden weakening of the yuan in January fueled fears of a devaluation and triggered global market turmoil. During the subsequent three months, the central bank adopted a more market-based system to set the rate and said the basket would play a bigger role.

Where the U.S. still dominates, however, is in the bond markets: moves in Treasury yields continue to steer Asian bond trading. And even if Asia central banks don’t match rate tightening by the U.S. Federal Reserve, financial conditions in the region may tighten if U.S. yields increase.

"We find only weak evidence that fluctuations in Chinese yields have any impact on other countries’ bond markets,” the analysts said.

 

[Beidou2020]

Chinese banks expanding their influence globally.

 

[somebozo]

Chinese banks expanding their influence globally.

Banks are usually back bones of propelling mega enterprises into export economies..because lending makes purchasing more attractive..this is how Japanese and South Koreans rode into several markets for their industrial goods..