Few bankers see smooth sailing for shipping sector

Confidence has returned to the broader banks market. Recovering equity markets have enabled banks to raise money; leading shipping bank DnB Nor Bank was able to replenish its regulatory capital with a massive USD2.4 billion rights offering, a week after BNP Paribas – also a leading maritime provider – raised EUR4.3 billion (USD6.3 billion).

During September, Bank of Ireland raised EUR2.5 billion in two separate deals with maturities beyond the 3Q 2010 maturity date of a government guarantee. Vibrant bond markets have eclipsed previous activity records. In this milder climate, bank funding markets have indeed loosened up.

The Ted spread, the difference between interest rates on interbank loans and short-term US government debt (T-bills), has fallen dramatically from around 100bp, where it stood for much of the first quarter of this year, to below 20bp, actually on the low side of historical bands.

Nevertheless, few shipping industry observers foresee clear sailing. Across most sectors, demand has been battered by the recession and the increasing supply of vessels is a lingering reminder of better times, when shipping banks competed with each other and easily met the industry's capital needs.

Paul Packard, head of maritime industries at Bank of Ireland, tells Jane's: "I believe that the majority of banks, like Bank of Ireland, have moved from a period of survival into a period of stability whereby the raising of capital and liquidity are at least now possible if not either easy or cheap." But Dublin-based Packard is quick to clarify, adding: "The fact that banks are now on sounder footing doesn't necessarily translate into more capital being available for ship finance."