Monday, 16 March 2009

Tumbling Trade, Flagging Shipping Industry Put European Banks at Jeopardy, Says S&P

The flagging shipping sector is putting downward pressure on the ratings of European banks exposed to the industry, Standard and Poor's said in a report today. S&P forecasts that at some point banks will have to provision more for bad trade loans to shipping companies -- provisioning against profits means banks will therefore require more capital. "Many shipping companies are struggling following a sharp downturn in global trade and challenging funding conditions. We expect these difficulties to result in a material increase in banks' loan loss provisions,´´said analyst Harm Semder. Pressure will come from an increasing number of loan defaults, eroding credit quality at shipping firms, and weaker recovery expectations due to falling asset values -- banks' capital ratios may decline as deteriorating creditworthiness increases the relative risk-weighting under Basel II.

We have witnessed a process of deterioration in the quality of shipping and trade and logistics companies in Latin America (especially in Brazil) following a dearth of trade financing, higher borrowing costs and a decline in demand for exports and imports. The Baltic Dry Index reported a drop in shipping fees of 92 percent between May and November last year -- just when the crisis began to unleash. Let's see whether rating agencies start looking for symptoms of the same phenomenon in Latin America. Banks that might suffer with a dramatic tumble in regional commerce and the quality of shipping and trade companies include BNDES, Banco Itaú, Banco Bradesco of Brazil, Proexport in Colombia, Bladex (probably) and the Mexican Ex-Im bank.

No comments:

Post a Comment