BOC to Finance Shipping as Global Nationalism Threatens Trade

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Bank of Cyprus’s chief executive officer John Hourican said that as the largest Cypriot lender was about to engage in financing of Cypriot and Greek shipping, roughly 17 per cent of global tonnage, it will do so via careful risk management, taking into account global geoeconomic and geopolitical trends.

“The facts today suggest that this business area has the potential to be a sensible, profitable and indeed long-term business for Bank of Cyprus,” Hourican told delegates at the Shipping Forecast Summit in Limassol on Monday.  “We aim to become a trusting banking partner”.

The decision for the bank, which until now stayed out of shipping finance and plans to do so with proper hires and embedding the required expertise, was made possible after the Irish banker was convinced to overturn his “careerlong negative bias towards shipping finance from (his) own time” at the Royal Bank of Scotland.

Bank of Cyprus, which four years ago, was forced to convert almost half of its depositors uninsured funds into equity as part of Cyprus’s bailout terms and is still struggling with a mountain of non-performing loans, wishes to serve the Cypriot and Greek shipping community “through careful customer selection, careful asset selection and actually being there over the long term for this market,” the bank’s top executive said.

The shipping financing will have to take global trade which relate trends into account which in turn is threatened by risks to worldwide macroeconomic, social and political stability stemming from increased global private, corporate and government debt levels and the rising nationalism, Hourican said.  While global trade immediately recovered in the aftermath of the global financial crisis eight years ago and is still expanding, it does so at a continuously decreasing rate.

“It is essential that we as (business) leaders understand and have a view on mega-trends that are impacting the world around us,” and include global demographic and social changes, shifts in global economic pattering today, climate change, technological progress, he said. “The world we live in today, is changing and there are many difficult truths that we as business leaders must address as we plan our future prosperity and economic survival”.

Nationalism, as manifested in the Brexit referendum in June and the election of Donald Trump who applied an anti-globalisation rhetoric and which is likely to impact the outcome of elections in the Netherlands, France and Germany, “is as a result on the rise,” and has to do with global trade and subsequently shipping, Hourican said.  “In the eyes of many OECD democracies, globalisation has not delivered the promised high levels of living standards. Nationalism is raising its head in taxation policy, sharing of information across borders, in demands for greater security contributions in NATO, rising trade disputes and cancellation of trade agreements”.

Already, the signs indicate that the shipping industry may further have to cut back on its excess capacity, amid falling cargo rates, and follow the path of the ship construction industry, after the number of shipyards numbering almost 1,000 worldwide shrank to 40 per cent in recent years, Hourican said.

Also banks realised the trend and reduced financing to shipping, he continued.  “Since 2008, bank finance to your industry has contracted by about 15 per cent in aggregate while the seaborne fleet has expanded by 30 per cent,” he said.  “This has clearly pressured the financial strength of all operators in one degree or another”.

“There are real business challenges in this sector and whilst there appear glimpses of sunlight though the clouds, there are still difficult periods ahead,” which among other include consolidation, the banker said.

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Source: Cyprus Business Mail

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