GERMANY's Commerzbank are expected to suffer shipping loan losses of as much as EUR441 million (US$588 million) this year, reports Bloomberg.
Many German smaller and mid-sized shipping companies, which has the world's third largest shipping fleet, can no longer pay debts with some facing bankruptcy, says the German Shipowners' Association (VDR) shipping association.
"A lot of the charter owners can't pay principal to the banks because of low charter rates. Smaller tonnage is hit especially hard. Markets are really poor and we still have a certain backlog of ships," said the Hamburg-based VDR's managing director Max Johns.
Commerzbank's 2008 takeover of Dresdner Bank AG increased its stake in shipping lender Deutsche Schiffsbank to 92 per cent, doubling the size of its maritime loan portfolio, just before the industry went into a worldwide slump.
Commerzbank has the world's third-largest shipping portfolio at $28 billion, according to Athens-based vessel finance consultant Petrofin SA.
Today, Germany's second-largest bank, behind Deutsche Bank, is already working to fix its balance sheet and raise EUR5.3 billion by the end of June.
Shipping loan losses will likely rise to 2.1 per cent of such lending at Commerzbank this year, Morgan Stanley analysts Henrik Schmidt and Doug Hayes wrote in a note. That's more than the 1.8 per cent projection for the Royal Bank of Scotland and the 1.5 per cent forecast for Norway's DNB, Italy's UniCredit SpA (UCG) and France's BNP Paribas.
"Shipping is one of the reasons behind Commerzbank's underperformance in the past 12 months," Kepler Capital Markets analyst Dirk Becker told Bloomberg from Frankfurt. "It is a risky business, as risky as many parts of commercial real estate. There'll be a time of reckoning at some point."
Maersk Line, CMA CGM and Hapag-Lloyd recorded losses in 2011 because of high fuel costs and falling freight rates, attributed to an oversupply of tonnage.
