NordLB to Post Loss on Bad Shipping Loans

German state-backed lender NordLB is expected to post a record pretax loss of more than one billion euros ($1.05 billion) this year as provisions for bad loans bite.

The bank said on Thursday it has set aside significantly more than two billion euros to cover potential losses from its 17 billion euro ship loan portfolio, which it plans to reduce to 16 billion by year-end.

"NordLB can meet the challenges on its own," Chief Executive Dr Gunter Dunkel said in a statement, adding that the bank has built up sufficient capital buffers in the past years and it is able to meet the demands of regulators.

"For reasons of caution, we also plan increased risk provisioning for ship finance for subsequent years," Dunkel stated. "Our aim again here is to generate significant profit in 2017 and in subsequent years. This target is based on the bank's strong market position in its main business segments. The capital ratios will also remain at a high level."

The bank's core tier 1 capital ratio decreased to 12.2 percent per September, from 13.1 percent at the end of 2015.

"We target to return to post a significant profit in 2017 and the following years," Dunkel said.

Germany was one of the world's main centers of global ship finance before the 2008 financial crisis, and the five German banks with the closest links to the shipping industry still have around 80 billion euros on loan to the sector.

NordLB, as well as peers such as HSH, Commerzbank, DVB and KFW, have taken writedowns and boosted capital buffers against the risk of shipping loans turning sour.