Bank of Cyprus organises the “Shipping Forecast Summit 2017” in Limassol on February 20 on the occasion of the launch of its Shipping Finance Department, part of its International Banking, Wealth & Markets Division. Louis Pochanis, Director of International Banking, Wealth & Markets of Bank of Cyprus, spoke to Gold about the objectives and the services offered by the new department, as well as about the performance and expectations of the Cyprus shipping industry and the local economy.
GOLD: Bank of Cyprus, International Banking, Wealth & Markets Division is launching a new Shipping Finance Department. What are the strategic objectives and goals of this division?
Louis Pochanis: Bank of Cyprus is the leading banking and financial services group in Cyprus, with significant market share across all businesses. As the largest Cypriot lender, Bank of Cyprus remains focused on operating as a key platform for growth in the Cypriot economy. The Bank’s listing on the London Stock Exchange is testament to the Group’s strategic plans for growth, where experience, heritage and customer trust is underpinned by financial stability and agility, making the Bank a strong partner for in the quest for growth.
The International Banking, Wealth & Markets Division has been providing banking and wealth management services to the shipping industry for many years; the addition of a Shipping Finance Department was therefore a natural extension to our range of products and services.
GOLD: What specific services will be offered by the Shipping Finance Department?
LP: The Shipping Finance Department will concentrate on the provision of financing for the purchase of ships, either existing ones or new builts. Additionally, recognizing the needs of the Shipping community, Bank of Cyprus offers a complete package which includes Transactional Banking, Private Banking, Custody, Institutional Wealth Management, Asset Management, Investment Banking, Global Brokerage and Treasury Sales. More specifically, Bank of Cyprus services to the Shipping sector include:
• Deposit Products – Current accounts in major currencies, fixed deposits, fiduciary deposits
• Payment Services – SWIFT and SEPA transfers, direct debits, payroll services, e-Banking
• Credit and Debit Cards
• Treasury Products – Wide range of solutions including FX products, structured products, hedging and other derivatives instruments
• Custodian Services
• Credit & Trade Finance Facilities:
o Investment Banking Services
o Global Brokerage execution
o Private Banking and Institutional Management Services
o Asset Management Services
GOLD: How significant will this new department be to the Cyprus shipping sector?
LP: Bank of Cyprus aspires to offer a tailor-made product offering to its shipping clients aiming at capturing their needs both at corporate, as well as personal level. Financing viable new projects obviously adds value to the sector and the economy as a whole.
Being the largest financial institution on the island, Bank of Cyprus cannot be absent from a sector that contributes 4% to the local economy’s GDP (and 7% if ancillary services are taken into account). Bank of Cyprus seeks to become a one stop shop for Shipping Clients offering excellent service and bespoke financial solutions to its clients.
GOLD: How did the local shipping industry perform in 2016?
LP: Freight rates and Asset values, especially in the Dry Bulk sector where the Greek-Cypriot shipowning community is particularly active, experienced further correction during 2016. Especially on the dry side freight rates at the beginning of the year reached an all-time low, while the market picked up during the second half.
On the wet side, we experienced the opposite where at the beginning of the year freight rates were relatively high while declining subsequently during the second half. The low freight rates on the dry side, put some owners under further pressure thus we saw some restructurings and a limited number of forced market sales and very few judicial sales.
Asset prices were arguably at an “all time low” and some Greek shipowners who managed to generate (or retain liquidity) over the past few years were in pole position to take advantage of these prices. As a result Greek & Cypriot shipowners were particularly active buyers of modern 2nd-hand, high quality tonnage.
GOLD: Was this better or worse than expected?
LP: Compared to other shipping nations, the Greek & Cypriot shipowning community exhibited an unparalleled resilience to the low freight rate environment. Greek & Cypriot shipowners have developed over the years a reputation for the counter-cyclical approach in shipping although this does not mean that everyone got it right. 2016 was no exception to that rule and we have seen a number of traditional shipping families capitalising on the buying opportunities that exist at the low end of the shipping cycle.
GOLD: What do you see as the main challenges facing Cyprus shipping in 2017?
LP: Cyprus is one of the largest ship management centers in the world and the Cyprus registry fleet ranks among the top 10 worldwide and among the top three in Europe. The global shipping industry faces a number of challenges, including the continued impact of the financial crisis, commodity prices, piracy attacks and environmental regulations. Nonetheless, shipping remains a critical industry to the global economy and Cyprus is expected to continue to play a prominent role as a leading maritime centre.
GOLD: The global shipping industry has had several difficult years recently and this has not helped its financing problems. Are you confident that things are improving and that this is an area which is going to be of considerable benefit for Bank of Cyprus?
LP: The present low freight rate environment is effectively the result of overcapacity in the shipping markets. One can say that during the past years shipping experienced a period of irrational exuberance; shipowners over-expanded by placing too many orders and banks over-extended by funding these orders. Although overcapacity will remain in the foreseeable future, new regulations, such as ballast water treatment and control of emissions, both costly to correct, may gradually lead to a correction due to increased scrapping and the dearth of ship-finance as a number of traditional shipping banks either exit the market or reduce their exposure.
Bank of Cyprus is following a counter-cyclical approach in its ship-financing operations and is entering the market after a significant correction, although it should be noted that nobody can predict the bottom of the cycle. Financing at prudent levels, given the low asset values reduces the risk, while the scarcity of funding from banks because of losses or extensive restructuring, gives BOC a competitive advantage to build its shipping portfolio.
Capitalising on its history, its strong human capacity and its trusted partners in the industry, this is a historical opportunity for the Bank. Bank of Cyprus is well positioned to develop ship-lending and other financial relations with reputable, traditional Greek & Cypriot shipowners, thus adding value to its shareholders
GOLD: Do you think that 2017 will be a year of growth for the Cyprus economy and, by extension, for the local shipping industry? Why/Why not?
LP: Yes we do expect that 2017 will be a year of growth for the Cyprus economy primarily because the recovery in 2016 has been very robust and well balanced, with declining unemployment and rising disposable incomes. All sectors of economic activity, with only few exceptions, contributed positively to real GDP growth particularly the sectors of tourism, trade and transport as well as the sectors of business and professional services.
For the first time since 2008 manufacturing and construction made considerable growth contributions. A revival of construction activity, even a modest one, is significant and is underpinned by rising investment demand for infrastructure works and also for housing. Property prices have stabilised in the year and started to rise, as measured by a number of related indices. A stabilising and recovering real estate market in turn improves confidence, supports private wealth and aids bank restructuring efforts. All of these factors work to create a better climate for consumption and investment demand that will be a driving force for growth in the medium term.
We expect the growth momentum to continue in the medium term, albeit at a slightly slower pace, which is reflected in all forecasts including by the International Monetary Fund and the European Commission. Consumer price inflation is expected to turn positive after three years of decline, driven largely by energy prices and by an expected robust domestic demand. The unemployment rate will continue to decline as job creation picks up whilst in public finances, the general government budget will remain near balanced. The primary surplus, estimated at 2,5% of GDP in 2016, may likely drop a little but will remain sizable, which will be aiding the further reduction of public debt relative to GDP.
The local shipping industry will be assisted by the positive economic developments described above. It is also expected to continue to be strengthened due to the high quality of professional services available on the island as well as the beneficial tax regime. These advantages of Cyprus should continue to attract more shipping companies from abroad.
GOLD: You are holding the Shipping Forecast Summit 2017 in Limassol onFebruary 20. What will it be dealing with and what will attendees gain from it?
LP: Bank of Cyprus International Banking, Wealth & Markets Division, on the occasion of the launch of its Shipping Finance Department, is hosting the first Shipping Forecast Summit that will take place on the 20th of February 2017, at Carob Mill Complex in Limassol. At the Summit, renowned shipping industry professionals from the international and local scene will discuss the current and future trends in the sector.
The Speakers are:
• Marios Demetriades, Minister of Transport, Communications and Works, Cyprus
• John Hourican, CEO, Bank of Cyprus
• Christopher Pålsson, Managing Director Maritime-insight, Lloyd’s List Intelligence
• Harry Theochari, Global Head of Transport, Norton Rose Fullbright
• Prof. Elias Karakitsos, Chairman, Global Economic Research & Associate Member, Centre of Economic and Public Policy (CEPP), University of Cambridge
The Summit will be chaired by myself and is under the auspices of the Minister of Transport, Communications and works, Mr Marios Demetriades. The Summit will offer the opportunity to attendees to hear the latest on Shipping as well as the views of the presenters about the current and future state of affairs of the industry. Attendees will also have the opportunity to discuss the Bank’s future plans relating to the shipping sector.
GOLD: Beyond the creation of the new Shipping Finance Department, what are your broader plans for the International Banking, Wealth & Markets Division of Bank of Cyprus?
LP: As regards International Banking, the emphasis continues to be on high quality of service, delivered mainly through digital service channels but always combined with a personal touch. Regarding Wealth & Markets, in addition to the Shipping Finance, we are focusing on the provision of high-quality Private Banking and Wealth Management Services. We are also in the process of setting up an Asset Management Company for the promotion of local mutual funds and fund hosting services as we believe in the success of Cyprus as an International Funds Centre.