Ship Financing for “Green” Ships On the Rise, As Creditors’ Appetite for Ships With Conventional Technologies Wanes

Financing for “green” ships is widely available and on better terms, compared to ships using conventional technologies. Following are the main findings of Petrofin Research’s latest annual report on global ship financing trends.

The Petrofin Index for Global Ship Finance which commenced at 100 in 2008, has remained stable at 63 in 2022 compared to 2021, as the drop in portfolios of the Top 40 Banks was very small.

2. Top 40 Banks’ lending to shipping in 2022 stands at $289.39, compared to US$290.12bn in 2021.

3. Asian and Australian banks (APAC) show significant growth, especially their market share, which has jumped from 40% to 44%. In terms of actual exposure their portfolio amounts to US$127.3bn compared to US$115bn in 2021.

4. European banks’ share declined further to 49.5%, below 50% of Global exposure for the first time.

5. Within Europe, the big decline of German banks continues. Regarding the UK, HSBC shows a decline, as they withdrew from Greek ship finance and part of that portfolio has been committed to Greek banks.

6. Greek banks showed a yoy growth of 4.6% from US$12.5bn in 2021 to US$13bn in 2022, whilst Scandinavian banks declined further to US$27.8bn.

7. According to Petrofin Research ©, we can provide a cautious, indicative figure for global ship finance, including all forms of lending – including leasing, export finance and alternative providers – of approx. US$525bn. The total global bank lending of all banks, including local banks, is approaching US$350bn, i.e. approx. 67% of all types of the global ship finance total.

8. Poseidon Principles now incorporates 30 signatories, which represent $200bn in shipping finance.

9. Japanese banks now figure more prominently in global ship finance.

10. ESG considerations and bank strategies continue to influence bank ship lending towards non eco vessels.

In its analysis, Petrofin Research says that the challenges facing shipping and, correspondingly, global ship finance remain. “Geopolitically the Ukrainian war and the disruption caused by sanctions and dislocated trade routes appear likely to remain for the foreseeable future. The tightening monetary policy in the West seeking to bring down inflation to 2% via high interest rates, also
appears likely to affect the whole of 2023 with some hope in place for 2024. The emphasis on ESG by banks and lenders and owners has grown stronger. This has also affected lenders in vessels which are not deemed to be in line with reducing emissions. Dual fuel vessels now account for 47% of all shipbuilding orders, a figure that adds weight to the above view. Whereas zero emissions technology is not yet available, dual fuel and other emission reducing measures are seen as the next best option. Consequently, a two-tier lending market has developed with lenders favouring eco vessels (tier 3, dual fuel, etc.)”.

According to the report, “funds engaged also in lending have begun to increasingly include ESG criteria, with a strong preference towards sustainability loans and vessels engaged in renewables. The ability of Funds to raise sums from investors has also shifted heavily towards green lending as this is now demanded by their investor base. It is noticeable that loan terms for eco vessels are better than for non eco vessels. Oil and gas related vessel use is also frowned upon despite evidence that alternative fuels cannot yet fully replace hydrocarbons. This is not to say that finance for conventional technology is not available, but, in our view, the appetite by lenders for these vessels is waning and this does affect, where available, loan terms and such vessels’ values. Until now, lenders have not differentiated sufficiently in favour of eco vessels to provide meaningful support for owners. Lending conditions for modern eco vessels used in oil and gas activities have so far been less affected”, Petrofin said.

Meanwhile, “turning to ship finance activity, it is clear that the industry is having difficulty finding sufficient loans that meet lenders’ credit criteria. The steep rise of western nations’ interest rates has dented vessel cashflows and in combination with high vessel prices relative to incomes in the dry bulk and container sectors, has resulted in weak new loan production. For example, average dry bulk prices are now similar to the average of 2021, whereas 1 year time-charter rates are now 40-50% lower. The same does not apply to tankers where one year market incomes are on average 30-60% higher than 2021 and vessel prices are also on average approximately 50% up in 2022. However, lenders are concerned with how tanker prices and incomes will develop in the event of an end to the Ukrainian war and a possible lifting of sanctions”, the report noted.

Petrofin Research concluded that “owners across all sectors have developed sizeable liquidity. Some have placed tier 3 orders but newbuilding slots are now limited for 2026 and 2027. Even though orders have picked up in early 2023, especially for tankers, they still do not pose a threat of overordering for the next years. Some owners are engaged in S&P but such volumes are well down in 2023. Most owners seem content to sit on their liquidity awaiting better risk / reward opportunities and technological advances, whilst others are prepaying their loans bearing in mind the high US Dollar interest rates. Under the above conditions, it is difficult to anticipate growth in global ship finance in 2023. Whereas we still anticipate a continuous shift away from Western lending towards Far Eastern lending, we expect global ship finance totals to remain stable. China’s commitment to growth is offering some hope of an early recovery in seaborne trade and dry bulk in particular. At the time of writing, the US and Europe are still facing slow / no growth but this varies from country to country. With 2023 world seaborne trade forecasted to grow by only 1.8% across all sectors and 3.2% yoy growth in tonne – miles (Clarkson’s), it is difficult to see excess demand condition for shipping. It is fair to assume continuous volatile conditions as demand and supply growth seem matched on the whole but differ from market to market. Leasing, Funds and SLB transactions have now become a well-accepted alternative to bank loans and we expect this segment of the Global ship finance market to grow. Overall, our predictions for global ship finance are that volumes will remain at / close to current levels with many lenders running to stay still”.

Nikos Roussanoglou, Hellenic Shipping News Worldwide