Shipping banks are pulling back on loans in 2016 amid rising market turbulence and heightened regulatory pressure, said bankers at the Hellenic-American/Norwegian-American Chambers of Commerce Shipping Conference.

"There has definitely been less appetite after the last month or two," said AMN AMRO North American shipping head Francis Birkeland at the forum, held in New York on Feb. 11. "There's money being lent, but clearly, the banks are much less eager to lend money now than in December," added Martin Lunder, Nordea's New York head of shipping and offshore.

The volatility in the broader markets, as well as distress in shipping sectors such as dry bulk and offshore, is having a "spill-over effect" on lending in stronger shipping segments such as tankers, confirmed Lunder. "The risk people are being much more diligent and the regulators are also coming into the situation, so things are just moving slower. There are new deals, but everything is a little more difficult."

"Also, we may look at a project that is very attractive, but if it's not part of a house that's solid, if the overall picture for the company that's try to obtain this financing is not good, then there's a hesitance to even be involved," Lunder continued. "The pendulum has swung in the direction of the banks being very cautious. Of course, we always look at the whole picture, but we question the assumptions [more in today's environment]. In the past we'd say, 'that's fine, they can do this, they can do that'. Now we're saying, 'We're not sure they can do this, we're not sure they can do that'. Therefore, we're more reluctant."

Beyond the tightening of loans for new projects, banks are also facing an escalation of debt restructuring discussions this year. "The tricky part in restructurings comes back to the regulatory issue," said Lunder. "Ten years ago, the banks had much more flexibility to find a commercial deal we all agreed was good, shake hands and move on. Today, it's much more complex and there are many more people who have a say in what banks can and cannot do." According to AMA Capital Partners director Kevin O'Hara, "It's not like in the mid-1990s when you could give [a borrower] a year or two and nobody would look twice. Back then, regulators hadn't even heard of shipping. Now it's on the radar screen, especially for European bank regulators."

When negotiating restructurings in 2016, Lunder explained that "the concept of 'debt is debt and equity is equity' is very important. Equity absorbs losses before debt, and banks are not in the business of giving free options," said Lunder. "We have to do what's best for us. We have to find a structure where we'll be better off two years from today. If the structure is putting us at more risk, it is very hard to justify that to regulators."

According to CIT director Omer Donnerstein, "Anyone in dry bulk right now is effectively running a short-term negative carry trade. The expectation from a bank is that the boards [of dry bulk borrowers] will be proactive in managing their liquidity by raising equity. We [the banks] are not here to fund that negative carry. That would be the wrong expectation for anyone to have. Yes, banks are here to support their long-term clients, but we're debt. We're not looking to be equity – and we're not paid to take equity risk."

Looking ahead, the decline in shipping loan activity this year could be the latest phase in a broader shift by European banks away from specialised lending to the shipping sector. "The space is already quite limited and from what I hear, it might be smaller going forward," Birkeland warned.