June 9 - Albeit early signs of recovery became visible during the first months of 2017, but the shipping industry's protracted slowdown will continue to exert pressure on German ship lenders' profitability, Moody's Investors Service said in a report publi

"Despite measures taken by individual banks in recent years, some German lenders to the shipping industry will face incrementally higher credit costs as long as the industry fundamentals remain weak and supply outstrips demand," said Michael Rohr, Moody's vice president - senior credit officer and author of the report.

The report, "Banking - German Ship Lenders: Further Losses Ahead as Problem Loans Continue to Mount", is available on www.moodys.com.

The five biggest German ship lenders reported outstanding ship-related loans of EUR59 billion (USD66 billion) at the end of 2016, with an average problem loan ratio of 37 percent in 2016, up from 28 percent in 2015.

This rise forced several banks to raise reserves and - in part - realise losses during 2016.

While this has improved the banks' aggregate problem loan coverage ratio to 51 percent at the end of 2016, from 45 percent in 2015, Moody's believes a coverage ratio of at least 60 percent is necessary for banks to be adequately provisioned for potential losses from shipping loans.

Moody's says that sustainably raising the coverage ratio to this level will be most challenging for DVB Bank and Norddeutsche Landesbank, which are both at risk of incurring net losses and see their capital erode further during 2017.

The European Central Bank (ECB) also said that it will conduct in-depth, on-site inspections over the next 18 months at banks exposed to shipping loans.

Over the longer-term, the ECB's review will help prevent future extraordinary and major losses from ship loans, provided banks implement improved risk management processes that allow them to recognise critical shipping exposures earlier and adequately provision for them.