Germany’s Norddeutsche Landesbank (Nord/LB) decided to withdraw from the ship financing sector as it looks for a fresh start with a capital injection of EUR 3.5 billion (USD 3.9 billion).
Owing to the run-down of bad loans from ship financing, Nord/LB set aside additional risk provisions of EUR 1.893 billion in 2018. Although all the bank’s other business segments remained profitable in 2018, expanding risk provisions for the ship financing portfolio led to a net loss for the year, as previously reported.
Earnings before taxes for 2018 amounted to minus EUR 2.057 billion, while consolidated profit came in at minus EUR 2.354 billion. In financial year 2017 by contrast, the bank posted a pre-tax gain of EUR 195 million.
“Such a heavy loss for 2018 is painful,” Thomas Bürkle, CEO of Nord/LB, said.
“But ridding ourselves of bad loans from ship financing will give us a new start. We now have clarity regarding the bank’s future path. We will combine the strengths Nord/LB is known for as a financier of SMEs with particular expertise in structured financing.”
Nord/LB will reinforce its capital ratio via a cash capital injection of EUR 2,835 million, in which two German federal states will participate, Lower Saxony with roughly EUR 1.5 billion and Saxony-Anhalt with roughly EUR 200 million. The Savings Banks Financial Group will provide EUR 1.135 million. Lower Saxony will also be contributing EUR 800 million in capital-relief measures, bringing the total capital to around EUR 3.5 billion.
In financial year 2018, Nord/LB made good progress in stripping the bad loans from its ship financing. By the end of 2018, Nord/LB had reduced the entire portfolio to EUR 10.3 billion.
Compared to the end of 2016, when the portfolio stood at EUR 16.9 billion, this amounts to a decrease of 39 per cent. The amount of non-performing loans (NPL) was equivalent to EUR 7.5 billion as at December 31, 2018. The NPL portfolio is to be run down as a matter of urgency.
As part of a portfolio transaction, the first step will be to transfer a significant part of the portfolio, in the amount of approx. EUR 2.6 billion to a financial investor, Nord/LB said.
In this context, Nord/LB set aside an extensive additional risk provision for the entire NPL portfolio, resulting in a total of EUR 1.8 billion for the ship financing segment for the 2018 financial year.
The total existing loan loss provisions set aside for the ship financing portfolio amounted to EUR 4.9 billion as at December 31, 2018, equivalent to a core risk coverage of 65 per cent for the NPL portfolio.