Firms’ hunger for credit is low

This is not good news for the financial sector: Less credit also means lower interest income for the institutes. Companies and the self-employed seem to have been reluctant in the first half of 2021. “The share of companies in loan negotiations with banks fell to a new low in all size categories in the second quarter,” writes KfW.

The reluctance is fed by several sources. “The companies still had a relatively large amount of liquidity because of the corona loans, many companies have adjusted their costs and converted fixed costs into variable costs,” says Hauke ​​Burkhard, Head of Corporate Finance at Deutsche Bank. In addition, payments from government grant programs accelerated between April and June.

However, the record volume of corona loans does not explain the weakness in the credit market alone; it goes beyond a “technical effect”, emphasizes KfW: the company’s loans have at least fallen back to the average level of 2008.

According to KfW chief economist Fritzi Köhler-Geib, the low demand of companies for financing is primarily responsible for the restrained new business. “On the one hand, sales are recovering in many areas of the economy, especially among service companies. On the other hand, the willingness of companies to invest is still below the pre-crisis level, ”she says.

Middle class is cautious

Christine Rademacher, Head of Financial Engineering Corporate Banking at Commerzbank, makes similar observations. “In parts of the middle class you can feel a certain caution,” she says. “There are customers who have started investment programs practically every year up to now, but who are currently postponing many things that are not absolutely necessary. The consequences of the pandemic are therefore still causing uncertainty in many cases. “

The statements made by customers about when they want to become more active again are very different: “In some investment-intensive industries, such as automotive suppliers, the need for financing is already rising again, while other customers want to wait until well into next year,” she says.

The development bank now expects the credit market to gradually recover in the second half of the year. “We assume that we have left the low point behind us and that we will see positive growth rates again after the turn of the year,” said Köhler-Geib.

This is also due to the fact that an important braking factor should be eliminated: the delivery bottlenecks that are currently hampering many production companies. “The delivery bottlenecks are more persistent than expected, but the demand is not lost,” said Köhler-Geib. She expects that “the restrictions caused by the delivery problems will likely subside again in 2022 and that the financing requirements will increase due to rising capital expenditure”. That would give the market an impetus for growth.

With a minus of eight percent, KfW is forecasting only a single-digit percentage decline for new business in the third quarter. In the fourth quarter, the decline to minus two percent should then be quartered again.

Investing in digitization and sustainability

Corporate bankers expect a similar development. “We expect investment activity to pick up in the coming year and then again positive growth rates on the market for corporate loans,” says Commerzbanker Rademacher.

In addition to the need for investment, “the need for working capital loans is likely to rise in many companies in the foreseeable future, because almost every medium-sized company is affected by the widespread rise in the price of raw materials,” she adds.

For the same reason, Deutsche Bank manager Burkhardt assumes growing demand for working capital loans. He also expects “an increase in investments and acquisition financing in the third and fourth quarters”.

Burkhardt observes: “In the meantime, investment activity is increasing again, on the one hand because companies are catching up on investments that have been postponed, and on the other hand because the first companies are launching large projects and investments in the areas of sustainability and digitization.”

Many banks are currently expecting that investments in sustainability will lead to a growing need for financing. At least in the medium term, companies will therefore face high spending programs.

On the one hand, there is growing pressure from legislators and customers on many companies to be more climate-neutral. On the other hand, it is foreseeable that banks will also increasingly make their willingness and conditions to finance dependent on the willingness of companies to operate more sustainably.

In the future, it will become increasingly unprofitable for banks to finance “brown” companies, said the board member of Landesbank Baden-Württemberg, Stefanie Münz, in a lecture at the Baden-Württemberg Cooperative State University in Karlsruhe last week. “No company will be able to survive in the long run without dealing with it,” she said.

No fear of bankruptcy wave

If the demand for financing rises again, the willingness of banks and savings banks to lend does not seem to be a major hurdle: “The institutes have meanwhile cautiously eased their restrictions in the lending business again,” says KfW chief economist Köhler-Geib.

This is also due to the fact that some banks fear fewer risks. “We still see no signs of a broad wave of insolvencies in Germany,” said the head of the Unicredit subsidiary Hypo-Vereinsbank, Michael Diederich, the Handelsblatt. “The majority of the German economy is still very well positioned and has come through the crisis relatively lightly by international standards.”

In July, the Bundesbank’s Bank Lending Survey, a survey in which the central bank asked several banks about their lending policy, indicated that the situation would ease somewhat. Afterwards, the surveyed institutes relaxed their credit guidelines and credit conditions in the corporate lending business for the first time since the beginning of the corona pandemic in the second quarter.

The institutes justified this easing primarily with what they believed to be the lower credit risk and their increased risk tolerance. According to the survey, however, some banks could tighten the reins somewhat in the second half of the year.

Companies are feeling the slight easing tendency, as shown by the KfW-Ifo credit hurdle, which asks companies about banks’ willingness to lend. After that, the middle class, especially in the manufacturing and service sectors, found it much easier to obtain bank loans again. There was a small countermovement among large corporations, but conditions for large companies had already improved significantly at the beginning of the year.

However, the times of the cheapest interest rates seem to be over: According to calculations by the management consultancy Barkow Consulting, the interest costs for companies have meanwhile risen sharply again. The interest costs have then increased in the past few weeks by 0.2 percentage points to most recently around 1.6 percent. They are thus at their highest level since the beginning of 2019.

That doesn’t necessarily mean that banks earned more from these loans: from December 2020 to July 2021, their net margins fell from 1.52 percent to 1.4 percent. More recent data are not yet available, but margins rarely widen in times of rising interest rates.

Collaboration: Christian Schnell

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