Many banks want to further tighten their regulations for climate-damaging companies.
(Photo: dpa)
Frankfurt The climate compatibility of companies is apparently playing an increasing role in their lending policy for banks: German financial institutions have significantly tightened their lending guidelines for loans to climate-damaging companies in the past twelve months. For climate-friendly companies, on the other hand, there was hardly any change.
In the next twelve months, an even larger proportion of banks intend to further tighten their lending policies towards climate-damaging companies. This is the result of a survey of banks that the Bundesbank conducts quarterly among around 30 representatively selected institutions. In this “Bank Lending Survey”, the Bundesbank asks the financial institutions about their business policies for corporate, mortgage and consumer loans.
It is the first time that the Bundesbank has broken down lending practices according to the climate compatibility of companies.
It distinguishes between “green” companies that contribute little or nothing to climate change, “yellow” companies that contribute to climate change but make “relevant” progress in the transition to climate-friendly business processes, and “brown” companies that contribute to a large extent to climate change and either do not redesign their business processes to be climate-friendly at all or make little progress in doing so.
In its survey, the Bundesbank measures the difference between positive and negative answers. If, for example, 60 percent of the banks tighten their credit guidelines, 20 percent relax their guidelines and the other institutions do nothing at all, the Bundesbank shows a balance of 40 percent.
In the case of loans for “brown” companies, the balance in the second quarter was 30 percent. So there was a clear backlog of banks tightening their credit standards for such firms. The outlook for such companies is also bleak: a balance of 70 percent of the banks surveyed want to further tighten the regulations for climate-damaging companies in the next twelve months.
Hardly any changes for “green” companies
Tighter credit standards don’t mean banks won’t provide financing to these companies. However, banks demand higher interest margins or more collateral from such riskier corporate customers, for example.
Companies striving for improvement also felt the effects of stricter guidelines. But the magnitude was much smaller. The guidelines for loans to firms in transition have tightened with a balance of 20 percent. In the next twelve months, the banks are planning stricter award criteria for them with a balance of 40 percent.
The bottom line is that lending policy to “green” companies has practically not changed over the past twelve months. Only minor tightening is planned for the future.
>> Read here: Too strict or too non-binding? Banks argue about the global climate alliance
The “Bank Lending Survey” makes no statement about the reasons why the banks are doing this. One possible explanation is the growing number of regulations that banks are subject to in the area of sustainability. For example, institutes should take climate risks more into account in risk management, and they will have to provide more information on the sustainability of their loan portfolios in the future.
The trend towards ever stricter lending guidelines is easing overall
If one disregards the special development in climate-damaging companies, then the trend towards ever stricter lending guidelines seems to be gradually abating. This is shown by looking at the general survey results, in which sustainability aspects were not specifically asked about.
According to this, banks continued to tighten their lending guidelines in all credit segments – loans to companies, housing finance for private individuals and consumer loans for private individuals. But the magnitude of this development has weakened. For the third quarter, banks are no longer expecting any notable tightening of their lending standards.
According to the survey, customers felt the effects of the stricter standards primarily in the form of higher margins, i.e. poorer interest rates. The main reason for this development was the reduced risk tolerance of the institutes. The difficult economic prospects also played an important role.
Broken down by sector, the stricter lending policy hit the real estate sector in particular: Banks raised their lending standards, especially for commercial and residential real estate. In the second half of the year, this industry will be hit harder than all other economic sectors. But it is also true for the real estate sector that the extent of the deterioration is gradually diminishing.
More: How companies save money with eco-loans