FRANKFURT (Reuters) - Germany's leading shipping lenders face 16 billion euros ($22 billion) in credit losses in the coming year as a severe sector slump makes it increasingly difficult for shipowners to repay their loans, ratings agency Moody's said.
Germany's eight major ship financiers have lent a total of 105 billion euros to the sector, a fifth of which are categorized as non-performing, Moody's said in a report.
"We expect the extended downward shipping cycle to cause rising problem loans in the shipping sector during 2013-14, requiring German banks to increase their loan-loss provisions. This will challenge their earnings power", the agency said.
Moody's findings chime with those of peer Fitch, which said late in November that it expects losses from shipping portfolios to remain high in 2014, particularly for German banks.
Moody's identified DVB Bank (DVB.F), HSH Nordbank (HSH.UL), KfW IPEX-Bank (KFW.UL), NordLB (NDLG.UL) and its subsidiary Bremer Landesbank (NLAG.UL) as the most vulnerable banks.
Problems with shipping loans will see banks' combined capital decreased by 13 percent until maturity of these loans, further weakening the lenders' financial health.
Moody's calculated only 30 percent of the problem shipping loans of its total sample were covered by loan-loss provisions. "(This) is likely to prove insufficient," it said.
A European bank health check may trigger additional provisioning as loans benefiting from remediation measures - such as covenant waivers or an extension of repayment schedules - may be re-classified as problem loans under the new standard of the European Banking Authority, the ratings agency said.
Moody's also said it expected the a five-year shipping slump to continue for several years as large numbers of new vessels continue to hit the waters, exacerbating chronic overcapacity.
(Reporting by Arno Schuetze; editing by David Evans)