Shipping finance hampered by `excessive' interest rates

Despite broadening the scope of its loan program for other maritime projects, credit facilities being offered by the state-owned Development Bank of the Philippines are bound to disappoint borrowers due to high interest rates and other stringent requirements.

Prospective borrowers of the bank's second domestic shipping modernization program (DSMP II) said the 13-15 percent interest the loans carry has rendered the window unaffordable to operators who would have been willing to avail of it to invest in more facilities.

DBP has fixed the lending rates at 13 per cent for the so-called developmental projects like maritime schools, feeder ports, and small shipyards, and 15 per cent for regular projects like acquisition of second hand vessels. Repayment ranges from three to fifteen years inclusive of a five-year grace period.

Maritime companies ask why the bank has to resort to higher interest levels since the financial grant, was a "soft loan" granted by a Japanese lending institution, with only a three to four percent interest rates.

The DSMP II, a continuation of the first lending facility granted to small domestic shipping operators that started in 1995, has obtained additional funding of 20 billion yen (P10.5 billion) with the DBP as the conduit bank. The DBP availed of the financial aid in yen but grants loans in local currency.

The loan is supposed to provide financial assistance to firms engaged in domestic shipping and marine-related industries such as ship repair, shipbuilding, cargo handling, terminal operations to make the transport of passengers and cargoes "efficient, safe, reliable and affordable".

"How can small operators push for modernization of their fleets and facilities if they cannot afford the high interest," asks a chief executive of a shipping firm. The DBP, he points out, should act within its mandate of providing small operators and entrepreneurs affordable credit facilities to give them the chance to grow.

Despite claims by the DBP of success in the launching of the loan program through high level of disbursement, however, a huge portion of the first DSMP has not been fully availed of. Out of the P3.91 billion provided by the OECF in 1995, P2.8 billion has been released or availed of by shipping related companies.

With the DSMP II, maximum availment of the financing package, which started in January last year, is far from better than the previous loan program.

Reacting to the criticisms, a bank official says the DBP added only one per cent charge to previous interest to safeguard against the devaluation of the peso.

Compared to the previous DSMP, the official says DSMP II has expanded its assistance program to cover other areas of maritime projects like replacement of wooden boats and improvement of maritime education and training centers.

Unlike the DSMP I, the DBP says, availment has become easily accessible to borrowers through the bank's provincial branches and accredited banks in the countryside.