Capital glut hits DVB

Earnings of shipping finance bank DVB suffered a setback through the first half of the year with most of its key financial figures down.

Net interest income fell to €105m ($140.3m), a reduction of 9.6% on the first half of 2013, with consolidated pre tax income down a massive 37.7% to €41.4m.

DVB chief executive, Wolfgang Driese, warned that there had been an unhealthy “flooding of international capital markets” as central banks had pumped in additional liquidity.

“The liquidity glut led clients to repay loans early, to a significant and unexpected extent. It was not possible to fully replace these repayments by additional new business,” added Driese.

DVB expects profitability to increase in the second half as the risk outlook appears to be stabilising but warned that nonetheless it expected allowances for credit losses for 2014 to be in line with the level of the two previous years,

DVB reported 78 new transport finance deals through the first half, up from 71 through the same period of 2013.

A total of 33 were shipping sector deals where underwriting totalled €964m, while there were also 12 offshore finance arrangements where the underwriting ran to €302m.

The bank sees oversupply as a key issue for some sectors of the shipping market but expects recovery to take hold in at least some markets through 2014.

DVB suggests that in terms of ship values the market is close to bottoming, but warns of declining bank interest in financing older vessels, stressing the market for second hand vessels.

And further defaults and consolidation involving shipowners and charterers cannot be ruled out.

Shipping finance is DVB’s biggest business area accounting for €8.9bn of the €20.3bn of lending by the Frankfurt based bank.

The portfolio is widely diversified with tankers accounting for 43.4%, bulk carriers 23.7%, containerships 16.2%, with cruise ships and ferries another 7.6%.

DVB clients include many well known shipping groups including John Fredriksen related companies, Navios, Teekay, SK Shipping, Navig8, Bourbon, Technomar, Almi Tankers, Buss, Elandra Tankers, Naftomar, Volstad Shipping and Ezra Holdings.