Export-Import Bank of China plans to increase lending for the buying or leasing of ships by around $3 billion this year as borrowers identify needs even during a downturn in the business, a bank official said.

A more than four-year slump in shipping, one of the worst on record, and pressure to shrink bloated loan books have forced many European banks to abandon or scale down lending to the sector. But Chinese banks have not been so badly affected and aim to expand ship loans.

China Eximbank, which specialises in export credits, currently has $12 billion in shipping commitments with over 70 foreign shipowners as clients and about 400 vessels mortgaged, Gao Zefeng, deputy director, shipping, said.

"As compared with last year, we will continue to grow our shipping budget maybe by 20 percent - maybe over $3 billion for this year in terms of new commitments," Gao said in an interview.

"In 2000, we started to provide export buyers' credits for the foreign ship owners. So in that sense no matter if the market is good or bad, as a policy bank we will continue our efforts in providing more support for the (Chinese) shipping sector," he said on the sidelines of a Marine Money conference in London.

China Eximbank provides finance for China-related business, including buying of ships built in China or the leasing of vessels chartered to Chinese shipping firms. Foreign shipowners have accounted for 90 percent of the deals it finances, and Chinese shipping firms for 10 percent, Gao said.

"It is very good time to invest," he said.

"As an export credit agency, we do not want to encourage oversupply; we do not finance speculative orders. For the real shipowner, who would like to replace their old tonnage, we would be very much interested in financing them."

Several European banks are moving to slash shipping loans as they cut their balance sheets to reduce risk and as tougher regulation requires them to hold more capital, making loans less profitable.

In one example last year, Hamburg-based HSH Nordbank said it would raise loan loss provisions to match increased levels of defaults on ship loans.

"Because of Basle III requirements, a lot of traditional shipping finance banks in Europe are severely impacted by the financial crisis. So more and more European banks are shrinking their balance sheets in shipping," Gao said.

"Still, the active ship-finance banks will continue their endeavours in this industry, for instance Nordic banks and Dutch banks. On the other hand, the Chinese banks are trying to fill the gap left by the withdrawal of the traditional banks, especially since 2009."

CHINA YARDS HIT

The slowdown in the seaborne market has hit some Chinese ship yards hard.

Gao said he expected some Chinese shipyards to go bankrupt in 2013.

"There are over 1,500 shipyards in China, and I would guess there are less than 100 yards that are still active in shipbuilding in China," he said.

"You can see a big cut in capacity of Chinese shipyards, which is really a good thing. Although there will be unemployment of some small yards, that is elimination of the poor and badly managed yards. It is a good thing for the industry. Otherwise the market will never come back."

Shipping firms ordered large numbers of new vessels between 2007 and 2009, when freight rates hit record highs, and the extra capacity arrived just as economies worldwide were slowing, sending rates tumbling.

Gao said that while excess shipping capacity would ease this year, overall conditions were likely to remain depressed.

"I think 2013 will be another tough year because shipping is closely related to economic growth, and the world economic growth is facing a lot of challenges," he said.

Source: Reuters