German Financial Institutions Cautious in Loan Negotiations with Corporate Customers, KfW ifo Indicator Shows

German Financial Institutions Cautious in Loan Negotiations with Corporate Customers, KfW ifo Indicator Shows

(IN BRIEF) The KfW ifo Credit Constraint Indicator for Germany shows that financial institutions responded more cautiously to loan applications from corporate customers in the second quarter after easing credit access in the first quarter. Among SMEs, 25.6% experienced restrictive positions from banks in loan negotiations. Credit constraint among large enterprises rose to 17.9%. However, there was a positive development for small and medium-sized service providers, as banks applied less strict lending criteria, resulting in a decrease in credit constraint for this group. The share of enterprises in loan negotiations increased in both size classes, indicating a cautious rebound in demand for bank loans.

(PRESS RELEASE) FRANKFURT, 2-Aug-2023 — /EuropaWire/ — The current KfW ifo Credit Constraint Indicator shows that after credit access eased in the first quarter, financial institutions in Germany responded to loan applications from corporate customers more cautiously again in the second quarter. Among SMEs, nearly the same number of businesses as in the previous quarter felt that banks took restrictive positions in loan negotiations. At 25.6% (+0.1 percentage points), their share remains on an above-average level. In the segment of large enterprises, credit constraint rose to 17.9% (+3.4 percentage points) after falling sharply in the previous quarter.

Among SMEs, the differences between sectors levelled out. Credit access developed positively for small and medium-sized service providers, to which banks had previously applied particularly strict lending criteria. Credit constraint for this group of enterprises fell by 4.9 percentage points to 26.5%. This reflects the now improved economic situation in the services industries, which is helping to further reduce remaining financial burdens from the pandemic. Among large enterprises, there is a silver lining for the construction industry. Credit constraint for large construction firms, which were hit particularly hard by tighter lending policies, decreased by 15.8 PP to 30.9%.

The share of enterprises that were in any loan negotiations at all with banks increased in both size classes in the second quarter but remained below the long-term average overall. The share of large enterprises seeking loans thus increased by a noticeable 3.0 percentage points to 31.6% on the previous quarter. Among small and medium-sized enterprises, too, a higher share – 21.6% – was in discussion with their banks about possible loans. Although the increase was a mere 0.7 percentage points, it was the second one in a row.

“Conditions for accessing credit remain challenging, to be sure, but a cautious rebound in demand from corporates for bank loans became apparent in the second quarter. This suggests that borrowing will likely stabilise despite the sharp interest rate rise last year and a similar downturn as in private residential construction loans can be avoided”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“Despite the weak economic environment, it is another reason that I continue to believe we will see moderate growth in business investment in 2023. That is good news given the high need for investment in digitalisation and climate neutrality.”

The current edition of the KfW ifo Credit Constraint Indicator is available at: www.kfw.de/kredithuerde

Media Contact:

Christine Volk
+49 69 7431-3867
 Christine.Volk@kfw.de

SOURCE: KfW GmbH