Ship Finance Fundamentals
How Banks Evaluate Shipping Companies
Summary
Banks evaluate a shipping company through debt-paying cash flow, fleet quality, employment visibility, liquidity, governance and sponsor support.
Why this matters in ship finance
Borrowers with similar financial accounts may have very different cash-flow resilience because vessel age, charterer strength and fleet composition differ.
The concept
Credit analysis joins audited statements and vessel-level projections with third-party valuations, debt-service coverage, leverage, concentration, technical management and legal enforceability. The EBA framework addresses the lender’s governance rather than prescribing one shipping scoring model.
How it is used in practice
Stress time charter equivalent (TCE) income, operating costs, dry-dock reserve, interest rates and asset prices; test independent and correlated market shocks.
Practical issues
A single profitability ratio, fleet valuation or flag indicator is insufficient. Sponsor statements may not be legally available to service vessel debt.
How ShipFinance.ai uses this concept
Present a consistent borrower scorecard and a transparent credit memorandum with linked evidence.
Key takeaways
- Cash generation and collateral both matter
- Governance cannot be inferred from ratios
- Stress tests should reflect shipping cycles
Primary legal, rule and scholarly sources
- Schinas, Grau & Johns (eds.), The HSBA Handbook on Ship Finance (Springer, 2015) - scholarly reference, not legislation
- Schinas & Kewitsch (2015), Loans and Risk Management Considerations, in BK3 - scholarly chapter
- EBA/GL/2020/06 - Guidelines on loan origination and monitoring (in-scope institutions; supervisory guidance)
- Regulation (EU) No 575/2013 - Capital Requirements Regulation (CRR; lenders within scope)