Norddeutsche Landesbank Girozentrale, a focus of the European Central Bank’s asset quality review along with other shipping lenders, swung to a first-quarter profit as it reduced loan-loss provisions by 59 percent.

The state-owned bank, which is based in the city of Hanover in northern Germany, posted a profit of 92 million euros ($126 million) compared with a loss of 32 million euros in the same period last year, it said today in an interim earnings report on its website.

Provisions for risky loans fell to 100 million euros from 241 million euros a year earlier, NordLB said. Non-performing loans rose 10 percent to 7.66 billion euros, from 6.95 billion euros reported a year ago. Loans it defined as high risk and very high risk fell 13 percent to 7.85 billion euros.

European shipping lenders, which also include Germany’s HSH Nordbank AG and Commerzbank AG, are seeing loans sour as the container vessel market experiences its sixth year of crisis and the ECB examines the assets of the continent’s largest banks. A glut of vessels in container shipping, which has the largest share in NordLB’s loan book, hurts the finances of borrowers by lowering the price they can charge to transport goods.

Loans Overdue

NordLB takes a “very conservative” approach to bad debt, meaning that a loan may be categorized as defaulting even though payments are not 90 days overdue, company spokesman Thomas Klodt said by telephone.

NordLB cut total shipping debt by 1.2 percent to 15.9 billion euros in the first three months compared with the end of 2013, according to the report. Non-performing loans in shipping increased to 5.5 billion euros from 5.4 billion euros during that period, Klodt said.

Distressed shipping loans have become a focus of the ECB’s review of 128 euro-area banks before it takes over as regulator in November.

While NordLB is “well-prepared” for the ECB tests, there is “uncertainty” about the consequences of the review,“particularly concerning the issue of capital adequacy,” it said.

Total risk provisions rose 50 million euros to 2.3 billion euros mainly on an “increase in specific valuation allowances in ship financing,” it said.

“Despite the better forecasts for global economic development for 2014 compared to the previous year, a cautious approach is advisable with regard to the shipping sector,”NordLB said.

The company still plans to increase its full-year profit compared with the previous year, it said.

To contact the reporter on this story: Nicholas Brautlecht in Hamburg at This email address is being protected from spambots. You need JavaScript enabled to view it.

To contact the editors responsible for this story: Angela Cullen at This email address is being protected from spambots. You need JavaScript enabled to view it. Mark Bentley, Jon Menon