Fitch: Shipping industry challenges magnified by tighter funding

Monday, 5 December 2011 00:00 - - {{hitsCtrl.values.hits}}

Fitch Ratings said last week the shipping industry is likely to face significant funding challenges as banks take a tougher line on lending.

Constrained capital and funding have increased risk aversion among banks, and this comes at a time when overcapacity is leading to poor cash generation among shippers.

European banks are a major source of funding for shipping companies. But they are under particular pressure to restructure operations that absorb large amounts of funding and capital. Long-term lending and asset finance, especially in US dollars, the common currency for ship finance, are likely to be most affected. Although lending to shippers by Asian banks has been rising, Asian banks are unlikely to fully replace the reduction in European bank lending to the shipping sector as they become more cautious and lend more selectively.

“We expect an increase in the number of distressed shipping credits in the next 12 to 18 months. The oversupply in most shipping markets and weakened asset values will make loan work-outs increasingly challenging for banks,” Fitch added.