TOP German national lenders Deutsche Bank and Commerzbank are stepping up efforts to offload distressed shipping loans, finance sources said, as the German banking system grapples with US$100 billion in toxic debt from the sector.

While the shipping sector is showing signs of recovery after a near-decade long downturn, it is still struggling with an excess of ships and sluggish growth in global trade, which has led to some shipping companies going to the wall.

German banks, once global leaders in ship financing, have written off billions of euros in loans to shipping firms, while other European lenders — facing capital pressure from regulators — have quit the business.

Two finance sources with knowledge of the matter said Deutsche Bank, Germany’s flagship lender, is looking to ringfence at least US$250 million in distressed shipping loans and package them in a unit within the group, with a view to selling the debt going forward.

“The idea is to package them together in one part of the bank — given how many units there are in Deutsche — and then look to sell them off at a discount. This appears to be a new approach by them,” one of the sources said.

The source said further tranches of loans could also be transferred.

In its quarterly results last month, Deutsche said its loan exposure to the shipping sector was approximately 5 billion euros (US$5.90 billion).

German banks are estimated by shipping finance sources to be holding at least US$100 billion in distressed shipping loans and shipping finance sources say much of this debt is unlikely to be recouped in full, meaning heavy losses on investments.

Banks in Germany were particularly exposed to container shipping, a market that has been weak for years.

In a separate move, two finance sources said, Commerzbank, Germany’s second-biggest bank, had in recent weeks sold over US$300 million in shipping loans to Germany’s Berenberg Bank and investment fund Cross Ocean Partners.

Commerzbank said this month it had reduced its shipping portfolio by more than 30 percent — or 1.5 billion euros — in the first nine months of this year to 3.3 billion euros, and the bank was on track for a year-end target of around 3 billion euros.

It added that it was considering running down its shipping portfolio “even faster than planned.”

“The ship finance rundown will be almost completely finalized well before the original 2020 target,” Commerzbank’s chief financial officer Stephan Engels said in November.(SD-Agencies)