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Categorized | Banks

NordLB warns on €1bn loss for year as shipping loans bite

Posted on November 24, 2016

NordLB warned that it is facing a loss of “more than €1bn” this year, after the German Landesbank once again had to shore up its reserves against losses on its portfolio of shipping loans.

Before the financial crisis lending to the shipping industry was a money-spinner for many German banks but during the past eight years they have suffered huge losses, as the global shipping industry has buckled under a combination of chronic overcapacity, poorly timed investments and cooling growth in China.

Although there have recently been tentative signs that the brutal market conditions are belatedly spurring consolidation — Japan’s big three shipping conglomerates said last month that they would launch a joint venture for their container shipping businesses — maritime lenders are still suffering.

NordLB said it had increased its loan loss provisions by €648m in the third quarter, having set aside €568m in the second quarter and €435m in the first, and that this had pushed it to a net loss of €330m in the three months to September.

Despite the loss, Gunter Dunkel, chief executive, said NorldLB could “master these challenges” on its own. “In the last few years we have built up a significant capital buffer, we have strengthened the bank’s earnings power, and have introduced strict cost controls,” he said.

“Our capital ratios remain at a high level, and have a sufficient buffer to meet all regulatory requirements. That also applies after taking into account the negative result for 2016, and the complete takeover of Bremer Landesbank.”

NordLB said in September that it would take full control of its smaller peer Bremer Landesbank, which was facing a big loss this year as a result of its own shipping portfolio. The transaction will go through on January 1 2017.

The third-quarter loss brought NordLB’s net loss for the first nine months of the year to €736m, down from a net profit of €539m in the same period a year earlier. However, NordLB’s common equity tier one capital ratio — a closely watched measure of financial resilience — rose to 11.5 per cent at the end of September, up from 11.2 per cent at the end of June, as the bank shed assets.

NordLB said in April that it intended to cut its portfolio of shipping loans, which stood at €19bn at the beginning of the year, to between €12bn and €14bn by the end of 2018. The portfolio stands at close to €17bn, and the bank expects it to fall to €16bn by the end of this year.

The bank said that it expected its loan loss provisions, which have reached €1.65bn this year, to be “considerably” above €2bn by the end of December. Mr Dunkel, who steps down later this year, said that the bank was also planning for “elevated” loan loss provisions for its shipping business in the years to come. Despite this, Mr Dunkel said that the bank was aiming to make a profit in 2017.