※The following article is from January 2024, but due to numerous inquiries from maritime stakeholders, it is being reprinted below.
The outstanding ship loans from the four major regional banks have reached an all-time high, with the total loan balance increasing to 2.9 trillion yen（20 billion dollars, at an exchange rate of 1 USD = 145 JPY, the following figures apply）. This rise is significantly influenced by the positive effects of the weaker yen. As the yen has remained in the 140-150 yen per dollar range, the depreciation of the yen has bolstered the dollar-denominated portion of these loans.
As of the end of September 2023, the total outstanding ship loans of the four major banks amounted to 2.8849 trillion yen (approx. 19.9 billion dollars), an increase of 312.8 billion yen (approx. 2.16 billion dollars) compared to the end of the previous period. This surge is attributed to the slowdown in loan repayments following the completion of Japanese shipowners’ vessel sales and the increase in new shipbuilding loan deals.
(Text by Hirofumi Yamamoto)
At the end of September 2023, the loan balances of each regional bank for oceangoing shipping were as follows: Iyo Bank at 1.04 trillion yen (approx. 7.17 billion dollars), Hiroshima Bank at 784.9 billion yen (approx. 5.41 billion dollars), Yamaguchi Bank (part of the Yamaguchi Financial Group, YMFG) at 650 billion yen(approx. 4.48 billion dollars), and Fukuoka Bank at 410 billion yen(approx. 2.83 billion dollars).
Compared to the end of March 2023, Iyo Bank’s loans increased by 135 billion yen, (approx. 931 million dollars), Hiroshima Bank’s by 76.9 billion yen (approx. 530 million dollars), Yamaguchi Bank’s by 60.9 billion yen(420 million dollars), and Fukuoka Bank by ⑪ 40 billion yen (approx. 276 million dollars).
■Increase in New Ship Financing
According to Iyo Bank, the factors influencing the balance of domestic loans for oceangoing shipping are as follows: new executions amounting to 133.5 billion yen, exchange rate effects of 64.7 billion yen, reductions due to scheduled repayments of 51.7 billion yen, and reductions due to early repayments of 11.5 billion yen.
The number of large-scale projects has increased, and the significant depreciation of the yen against the US dollar and the Swiss franc has led to an increase in the yen-converted amount of foreign currency-denominated loans.
Since 2021, regional banks’ ship financing has undergone significant changes.
Traditionally, regional banks primarily financed bulk carriers built by Japanese shipowners. However, since 2021, new orders for bulk carriers by Japanese shipowners have decreased due to the sluggish dry bulk market. Conversely, Japanese shipowners have accelerated the sale of bulk carriers, taking advantage of the yen’s depreciation, leading to a period when their loan repayments to regional banks increased.
Meanwhile, the outbreak of the COVID-19 pandemic and the grounding of a large container ship in the Suez Canal caused a sharp rise in the global container ship market.
Japanese shipyards have also seen an increase in orders for ultra-large container ships of the 20,000 TEU class. Most Japanese shipowners find it challenging to own such ultra-large container ships independently.
As for regional bank financing, the amount per ship is around 200 million dollars, which is substantial. “It’s almost unheard of for a single regional bank to finance such ships alone,” said a regional bank official in charge of ship financing.
■Financing for LNG Vessels
The global energy supply has tightened due to the Russian invasion of Ukraine, particularly affecting energy transport.
This has led to an increase in LNG (liquefied natural gas) transport from Qatar and the United States to Europe, resulting in more orders for LNG vessels from NYK Line, Mitsui O.S.K. Lines, and Kawasaki Kisen Kaisha.
Regional banks’ responses to financing LNG vessels vary. Some cases involve joining syndicated loans organized by major banks and shipping funds, while others see regional banks independently financing LNG vessels purchased before ship prices surged.
Recently, there has been an increase in financing for new ships that accommodate alternative fuels like LNG, methanol, and biofuels.
These new fuel-compatible ships generally have higher construction costs compared to conventional new ships.
“If operators (shipping companies) secure medium- to long-term charters and Japanese shipowners can increase their equity contributions from the usual 10% to 30%, we provide financing,” said a senior official from a regional bank.
While most of the financing from regional banks goes to Japanese shipowners, 60-80% of the charters from these shipowners are with overseas operators.
Historically, Japanese shipowners placed new ship orders primarily for long-term charters with major Japanese shipping companies like NYK Line, Mitsui O.S.K. Lines, and Kawasaki Kisen Kaisha.
Since the Lehman Brothers collapsed in September 2008, Japanese shipping giants have become more cautious about long-term charters.
Currently, regional banks are exploring financing decisions that align with the needs of Japanese shipowners.
These banks are transitioning from traditional financing assessments based on “charter guarantees” to considering the corporate creditworthiness of Japanese shipowners and the asset value of ships (asset finance). Regional banks are comprehensively evaluating shipowners’ equity contributions and the creditworthiness of overseas operators to make lending decisions for ship financing.