Frankfurt In view of rising energy prices and high inflation, there are growing concerns about over-indebtedness among Germans – also on the part of the financial sector. “What we are finding is that people are finding it increasingly difficult to make a living,” said Tanja Birkholz, head of the credit agency Schufa, on Wednesday at the Handelsblatt banking summit. “There’s definitely something brewing.”
Although Schufa sees “only a slight increase in negative reports so far,” said Birkholz, who has been at the helm of the company for two years. But: “We expect something there.” According to Birkholz, the further financial situation of low-income earners in particular depends to a large extent on the size and specific design of the federal government’s relief package.
A negative Schufa entry occurs when borrowers do not settle outstanding claims and there is a court order for payment.
If a consumer wants to take out a loan, buy a car or a mobile phone or rent an apartment, banks, retailers or landlords usually do a credit check with the credit agency, which was founded in 1927 as the “protection group for general loan security”. According to Birkholz, there are 300,000 creditworthiness inquiries every day, and even a million on peak days.
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“If the stock of negative reports increases, that can’t be good – neither for people nor for the economy,” said the Schufa boss with a view to the risk of increasing over-indebtedness. Nick Jue, head of the online bank ING Germany, shares the assessment: “I have exactly the same concern.”
Some Germans are increasingly using up their own savings
Deutsche Bank boss Christian Sewing also assesses the situation as threatening: A significant proportion of people in Germany are currently living off their savings. “It’s dangerous,” he said. There are enough families in Germany where the monthly expenses are already higher than the income. The savings banks, market leaders in the German banking market, are already anticipating that up to 60 percent of German households will have to use their entire available income or even more for basic living expenses.
This increases the warnings of an increase in personal bankruptcies. The head of Creditreform’s economic research, Patrik-Ludwig Hantzsch, recently warned in the Handelsblatt: Life is becoming more expensive across the board and rising inflation will significantly exacerbate the overindebtedness situation.
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Peter Kenning, Chairman of the Advisory Council for Consumer Affairs in the Ministry of Consumer Protection, considers the risk of bankruptcy particularly high for households that are low-income and heated with gas. The German Institute for Economic Research points out that almost 40 percent of the people in Germany had no significant assets and were not able to save systematically.
Some consumers therefore take out loans to make a living. That too is likely to increase. “There is a need for funds,” and it is now often not for a long journey, “but much more existential,” said Birkholz, referring to the growing demand for credit.
According to Schufa data, the number of loan inquiries has risen by 16 percent within a year, and the number of loan agreements concluded has increased by eight percent. So some consumers don’t get credit.
BNPL creates additional risks
Birkholz points to a significant increase in financing through purchase on account and installments for online shopping, in technical jargon “buy now, pay later” (BNPL) – and also sees dangers here. “BNPL is indeed a trend. There is a structural upheaval taking place in the lending business.” However, part of the character of BNPL is “that I order something that I may not be able to afford at the moment”.
The proportion of consumer loans with a volume of less than 1000 euros increased by 20 percent from the end of 2020 to the end of 2021 and now accounts for 30 percent of all loans. A lot of this is probably about BNPL funding.
Less stringent consumer protection applies to loans of up to EUR 200 and loans that have to be repaid within a few weeks. The credit check that is otherwise usual with loans is usually not required here – as is often the case with BNPL offers. The former Commerzbank manager also sees an additional debt risk in the combination of the lack of a credit check for these products and additional burdens for consumers.
Most recently, Schufa made the headlines because of a bidding war – which the Volksbanks and savings banks decided in their favour. Savings banks and cooperative banks increased their stake in Schufa to more than 50 percent. Together they hold almost 55 percent of the credit agency and thus prevent the Swedish financial investor EQT from taking control of the Wiesbaden company.
This is how the Handelsblatt reports on the 2022 banking summit:
At the end of June it became known that the cooperative financial group had increased its stake in the credit agency from 20.5 to 27.2 percent. The German savings banks have only slightly increased their stake in Schufa. You now hold 27.3 percent of the data service provider.
In autumn 2021, EQT had agreed with the major French bank Société Générale to take over their ten percent stake in Schufa and also wanted to buy more shares. The value of the Schufa was estimated at two billion euros at the time. However, as existing shareholders, savings banks and cooperative banks have pre-emption rights for the participation of the major French bank – and have now at least partially used them.
Criticism of the Schufa is sparked again and again by the fact that consumers do not understand exactly how their so-called score value at the Schufa comes about. Therefore, there is a demand that the company becomes more transparent here.
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