Bank Debt Returns to Normalcy?

One of the major concerns on the minds of many would be the pile of toxic collateralized mortgage paper that remains on banks’ balance sheets and this will continue to restrict the banks’ ability to extend new credit. Likewise, shipping banks face the same tricky task of valuing the shipping assets on their books based on current market prices. Basel II requires banks to set aside more capital to riskier assets whenever the security cover reduces, and this could potentially limit capital for lending. The process of writing down book values has yet taken place and moving forward, it is absolutely crucial that bank losses on shipping remain limited or the industry could risk losing a number of lenders. There has already been a material contraction in ship lending capacity among major shipping banks.

2009 has been a busy year for the ship financiers, not so much for lending but more in terms of restructuring and workouts. Lending terms as one would expect have become more stringent in 2009 and not only has the advance rate been lowered to 50-60%, banks prefer shorter tenors between 3 and 5 years. This is in stark contrast to the 10 to 12 year tenors banks were offering shipowners during the shipping boom just a couple of years back. Bankers call this a return to basics.

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