Credit Risk, Analysis, and Policy in Bank Shipping Finance

This chapter concentrates on credit analysis and credit policy in bank shipping finance. Both were introduced by the author in the 1970s through presentations at the Institute of European Finance in Bangor, University of Wales, and elsewhere; and through the publication Bank Finance for Ship Purchase , Bangor Occasional Papers in Economics, University of Wales Press (1979). A major question addressed in this chapter is how the shipping banker deals with the credit risk in bank shipping finance. There are certain tools at the banker’s disposal to minimise the credit risk. These are credit risk analysis; the use of collateral securities for the granted loan(s); the covenants in the loan agreement and the mortgage; the monitoring of the granted loans by the bank; and the shipping credit policy that the bank has created. During the analysis of these tools, other concepts are discussed while challenges and positive actions appear. One should remember that banks continue to be the major source of finance for the shipping industry.