Banking

China's ship-financing drive hindered by tax rules: BoCom

(Agencies)
Updated: 2010-07-30 10:53

Chinese lenders' attempts to expand financing for ships are being held back by tax regulations and a lack of expertise, according to Bank of Communications Co.

"Banks have a strong interest in ship financing as they have abundant money seeking investment," Cao Xingyuan, the head of shipping at BoCom's leasing unit, said by phone on Junly 29. "However, their involvement is limited as they're lacking industry knowledge."

Banks in China, with 87.2 trillion yuan ($13 trillion) of assets, have less than 5 percent of the global ship-financing market, according to Cao, even after European banks pared lending amid the global credit crunch. BoCom, China Merchants Bank Co and other Chinese lenders have boosted their focus on shipping as the nation works to surpass South Korea as the world's biggest shipbuilder.

Chinese banks are deterred from offering operating leases, where they own the ship, because of a 5 percent tax rate, Cao said. They are instead involved in finance leasing, where the customer borrows money to buy the vessel, he said.

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"The future of shipping finance lies in operating leases," Cao said. The government is introducing rules to allow the formation of special purpose vehicles in designated areas to help banks offer operating leases, he said.

Chinese shipowners also face a vessel-register process that can take as long as 50 days, compared with less than a week in Hong Kong, which further slows banks' efforts to develop ship- financing, Cao Said.

BoCom's ship-finance customers include medium-sized shipping lines and units of power and steel companies, Cao said. He declined to name any customers or to give a value for the size of the bank's ship-finance operations.

Worldwide, banks are easing lending requirements for shipowners this year as they're more positive about the economy, Cao said.

Global financing for shipping companies may reach about $60 billion this year after plunging 64 percent to about $30 billion in 2009, Rory Hussey, managing director at ING Groep NV's shipping finance division said in February.