ECB gets tough

The European Central Bank (ECB) is hardening its stance on how shipping loans should be valued as part of its review into the continent's banking sector.

Several sources cited by Reuters said the ECB wants to ensure lenders have enough capital to cover future cash crunches like the one that hit German banks particularly hard from 2008.

The central bank, which is taking over supervision of eurozone lenders from 4 November, believes German banks’ valuation models for vessel loans are too optimistic and will demand a write-down of up to 12%.

This may lead to even bigger loan-losses potentially worth hundreds of millions of euros for banks and could push them to raise more capital.

The discounted cashflow model used in Germany includes future revenue attached to loans, but this gives values higher than the market price of ships.

The ECB wants valuations to stay closer to the market.

An ECB spokesperson said only: "We...will come up with requirements that produce appropriately conservative outcomes and are consistent across countries."

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