A bank without experience of loss

2003 was another profit making year for Svenska Skeppshypotekskassan, the Swedish Ship Mortgage Bank. In fact the bank has never in its three-quarter of a century long history experienced red figures at the bottom line or any credit losses.

The year 2003 ended with a SEK 64.2 million (EUR 7.1 million) profit on a SEK 5.64 billion (EUR 620 million) balance sheet total. Although being lower than the corresponding figures the year before, this can entirely be explained by changes in the SEK/USD exchange rate and by the prevailing interest situation, resulting in lower returns on the reserve fund. Since 1999, the bank has however expanded its business significantly. Market shares have been taken and the balance sheet total has in five years risen by more than 60 per cent. Some of the effect can be explained by changes in exchange rates but the main reason is more business deals.

	Birgitta Wickenberg Karlsson, Managing Director of Svenska Skeppshypotekskassan.

Last year, loans of SEK 900 million (EUR 99 million) was granted for disbursement. This is fall by SEK 600 million (EUR 66 million) compared to 2002.
– This was largely due to irregular deliveries of ships ordered by our clients, says Birgitta Wickenberg Karlsson, Managing Director of the bank.

Established 75 years ago
The bank was established in 1929 to facilitate the financing of Swedish shipowners and to rejuvenate the Swedish merchant fleet. Today, the state-owned bank can operate on a larger market as its market limits has been widened to include “foreign-owned shipping operations if there is a significant Swedish interest or influence”.

The Government has however chosen to leave out any specifications in their instructions, so what this actually means in reality has been left to the discretion of the management and the board.

– I must empathise that we will not involve ourselves in deals in markets where we don’t have sufficient knowledge of the market conditions, just because there is a part of the deal controlled by Swedish interests, says Birgitta Wickenberg Karlsson. This could include items such as tax legislation and competition.

A cautious approach
This cautious approach is probably one of the reasons behind the bank’s track record. The bank has never had any losses at the bottom line, and apart from a small loss in connection with the bankruptcy of a shipping company in the late 1970s, the bank has never experienced a loss in any individual credit deal. Another is the strict demand for security. The bank provides financing of up to 70 per cent of the ship value, or up to 80 per cent in certain cases. The loan term can be up to 15 years.

The bank however has a more lenient approach to small shipowning companies. These could be granted loans up to 90 per cent of the ship’s value under the terms of a special ordinance.

Although the owner – the Swedish State – has tough demands for secure and sound deals, the bank is in a good position for expansion.

In 2002, the reserve fund passed the SEK one billion mark (EUR 110 million) and reached SEK 1,076 billion (EUR 118 million) by the end of 2003. This, together with SEK 350 million (EUR 38.5 million) in guarantees provided by the State, are to be used to cover any losses.

Solidity stands at 19.1 per cent and the capital adequacy ratio at 22.5 per cent.
A team of eight persons manages the state-owned bank. The board of the bank takes all credit decisions on the proposal of the Managing Director, and also establishes all ship’s values. It consists of seven members and seven deputy members, all appointed by the Swedish government.

The board is led by its Chairman, the well-known industrialist Pehr G. Gyllenhammar, today active in the London business community, but most commonly known as the former CEO of the Swedish car manufacturer Volvo.

Shipping representatives
The board also includes several representatives from the shipping sector. Now this could of course spark some allegations of conflict of interests. What if a shipowner applies for a loan and one of his competitors is in the board?

Birgitta Wickenberg Karlsson is well aware of the potential conflict of interest.
– The board puts a lot of trust in the management, which handles and investigates all loan applications, she says. All credit matters are also discussed by a credit committee on which the shipowners are not represented. The recommendation sent to the board for a final decision contains the management’s and the committee’s findings without any details from the client’s business plan or any other information that shouldn’t be shared with a competitor.

– My experience is that the integrity of the client has always been highly respected. The members of the board are professionals and well aware of which chair they are sitting on when acting as members of the board of the bank, says Birgitta Wickenberg Karlsson.

The bank management also has another task for the Government. The net wage system included in the Swedish shipping policy is supervised by the Board for Shipping Support. The day-to-day operation of the scheme is however run by the people of the Swedish Ships’ Mortgage Bank.

//Rolf P. Nilsson