Exclusive: ECB reviews banks' lending to troubled shipping industry - sources

FRANKFURT (Reuters) - The European Central Bank has launched a review of banks’ lending to the shipping industry, much of which is suffering a deep downturn, five people familiar with the situation told Reuters.

European Central Bank (ECB) sign is pictured outside its headquarters in Frankfurt, Germany, April 21, 2016. REUTERS/Ralph Orlowski

The review by the ECB’s banking supervisor has raised concerns among lenders, particularly in Germany, that they may be required to set aside more capital and make higher loss provisions against loans to the industry.

At the end of last week, the supervisor sent an email asking a series of European banks for details of their shipping loans and the status of their loan loss provisions as an “initial step” in a broader review of lending in the sector, one of the sources quoted the email as saying.

“It is a very extensive request,” the source told Reuters.

The ECB declined comment.

Germany was one of the world’s main centers of global ship finance before the 2008 crisis, and the five German banks with the closest links to the shipping industry still have around 80 billion euros ($90 billion) on loan to the sector.

State-backed lender NordLB [NDLG.UL] said this month it plans to take full control of subsidiary Bremer Landesbank because of the latter’s burgeoning losses in ship finance.

Peers such as HSH Nordbank [HSH.UL] and Commerzbank CBKG.DE have also taken writedowns and boosted capital buffers against the risk of shipping loans turning sour.

While the oil tanker trade has picked up, the container and dry bulk shipping industries are struggling with a glut of ships, a faltering global economy and weaker consumer demand.

The ECB already combed through ship financiers’ books during its Asset Quality Review of the largest euro zone lenders in 2014 before it took over responsibility for supervising them from national bodies.

Banks now fear tighter supervisory conditions following a renewed downturn in the shipping market since the third quarter of 2015 and the ECB’s patience with gradual corrective measures may have worn thin.

"People (will) more and more face reality, but that means more and more increased loan loss provisions and the capacity to crystallize losses," Klaus Stoltenberg, global head of ship finance at Deutsche Bank DBKGn.DE, said on June 7.

Banks will be forced to mark down their loans and adjust portfolios to market values over the next two years, he told a Tradewinds shipping forum in Athens “There is no more room to kick cans,” he said.

NordLB, HSH and Commerzbank declined comment.

Additional reporting by Frank Siebelt in Frankfurt and Jonathan Saul in London, Writing by Jonathan Gould; Editing by Edward Taylor and David Stamp