Abstract
AbstractShipping markets irregularity due to high-level volatility of freight rates and asset prices increases the risk of banks’ invalid financial strategy. Risk is further increased due to the heterogeneous shipping market, despite the regulations set by the Basel Convention. Consistent with the above, the present work contributes to the existing methodological aspects of bank’s financial strategy on shipping finance by enhancing the role of the credibility theory, which balances the individual bank policy with the market as a whole. This has been primarily forwarded on by the analysis of the operational environment’s internal factors of an individual bank combined with the whole shipping banks’ loans portfolio by estimating the credibility factor to the decision of the bank to either increase or decrease financing in the relevant market. The important factors extracted from the principal components analysis are linked with interest income on loan and operating profit accounts. The final model predicts ...
Highlights
The presence of high risk in shipping markets due to high volatility in terms of freight rates and asset prices raises questions about banks’ decisions to continue financing such an irregular and heterogeneous market, despite the regulations set by the Basel Convention (Albertijn, Bessler, & Drobetz, 2011; Sambracos & Maniati, 2013)
Focusing on the most essential operational environments’ internal factors of an individual bank combined with the whole shipping banks’ loans portfolio that may influence its decision to either increase or decrease financing in the relevant market, we developed a specific methodological framework for shipping finance with respect to bank credibility
We found that the most important variables from shipping banks’ internal environment that affect a bank’s decision to either increase or decrease the shipping portfolio are linked to interest income on loan and operating profit accounts
Summary
The presence of high risk in shipping markets due to high volatility in terms of freight rates and asset prices raises questions about banks’ decisions to continue financing such an irregular and heterogeneous market, despite the regulations set by the Basel Convention (Albertijn, Bessler, & Drobetz, 2011; Sambracos & Maniati, 2013). Internal factors of the operational environment of an individual bank in relation with the whole shipping banks’ loans portfolio, are analysed by applying the credibility factor to the decision of a shipping bank to either increase or decrease financing in the relevant market. Consistent with the variance of shipping loans granted, we present a stochastic model in order to estimate the premium for the period in relation with past claims experience data (Zadeh & Stanford, 2016). This model is based on the credibility factor as a parameter used to quantify the individual bank’s outcome (decision) with respect to both the internal and external financial environment
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