- First quarter lending was up 7.3% year on year
- Growth of 10% expected for the second quarter
- High liquidity requirements due to pandemic-induced income losses are driving short-term loans
- Credit access expected to remain broadly intact
(PRESS RELEASE) FRANKFURT, 18-Jun-2020 — /EuropaWire/ — KfW’s centre of economic expertise KfW Research has just released its KfW Credit Market Outlook. KfW Research calculates the quarterly publication (KfW Credit Market Outlook) exclusively for the German business newspaper Handelsblatt. According to the paper, the drastic impact of the coronavirus outbreak hit Germany over a period of only a few weeks in March 2020, but it was enough to heavily influence the lending dynamic in the first quarter. Furthermore, acording to the research, the growth of new lending to domestic businesses and self-employed persons (without residential construction and finance institutions) almost doubled at the start of the year after continuously weakening since the end of 2018 while new lending to business customers was up 7.3%, after growing just 3.7% between October and December 2019.
The acceleration was driven by short-term loans, while long-term loans, which are primarily used to finance investment projects, hardly increased anymore. This reflects the sharp rise in funding requirements resulting from turnover losses caused by the pandemic. A supplementary survey published by KfW Research in April shows that in March, for example, SMEs lost an average 53% of their usual turnovers. This has likely prompted them to first draw on existing credit lines in order to quickly cover ongoing costs.
“The coronavirus pandemic and the disruptions it has brought to business activity left a clear mark on the first quarter already, and this will dominate developments in the corporate credit market until the end of the year”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Economic output during the weeks of the lockdown in the second quarter was probably just 75-80% of the normal level. Even if the recovery has since begun, it is unlikely to climb back to the pre-crisis level until 2021. The funding requirements of businesses to overcome the shock therefore continue to rise, as does their demand for bank loans, the most important borrowing instrument. I expect new lending to businesses to increase by around 10% in the current quarter. In addition to drawing on credit lines, newly negotiated bridging loans – which include the KfW coronavirus support programmes – are likely to become just as important as the suspension of repayments.”
As the pandemic is putting enormous strain not just on the real economy but also on banks, the question is whether this will have consequences for credit access. KfW Research currently does not expect any negative impact. It is not just the credit institutions’ good equity and liquidity position combined with regulatory relief that makes us optimistic. A whole gamut of economic policy measures is also supporting banks directly or indirectly in expanding credit supply. Among other things, the ECB is providing abundant liquidity, as well as attractive funding conditions to make lending more profitable. Under the KfW coronavirus support programmes the banks are largely exempted from additional risks of new loans. The liquidity assistance being provided by the federal and state governments in the form of grants reduces the risk of insolvency. Finally, the recently adopted economic stimulus programme will improve the medium-term business outlook for many enterprises and, therefore, the probability of loan repayment.
KfW Research calculates the quarterly KfW Credit Market Outlook exclusively for the German business newspaper Handelsblatt. The current edition is available at: KfW Credit Market Outlook
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SOURCE: KfW Group