Frankfurt Despite the war in Ukraine and the threat of recession, banks and savings banks granted significantly more new loans to German companies in the first half of the year than in the previous year, according to KfW calculations. In the second half of the year, however, growth is likely to weaken, writes the state development bank in its current credit market outlook, which is exclusively available to the Handelsblatt in advance.
According to the calculations, credit institutions in Germany granted 15.5 percent more loans in the first quarter than in the previous year, and in the second quarter it may have been as much as 16.5 percent. “The current growth in new bank loans is therefore significantly stronger than at the beginning of the corona pandemic,” says the credit market outlook.
However, the outlook for the rest of the year is bleaker. “We are assuming a lull in new lending business. After a strong first half of the year, war, economic slack and borrowing costs will slow down new lending business in Germany in the second half of the year,” chief economist Fritzi Köhler-Geib told the Handelsblatt.
KfW is already forecasting a trend reversal for the third quarter due to the slowing economy and the turnaround in interest rates. The growth rate should then drop to nine percent.
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“In view of the threat of a gas supply stop, the uncertainty in the economy is extremely high. That will slow down companies’ propensity to invest,” explained Köhler-Geib. At the same time, business development is deteriorating in some sectors. This is now leading to greater caution on the part of many banks when it comes to lending.
“The demand for credit is very high at the moment”
An end to the credit boom would also be a hard blow for the business of banks and savings banks. In the first half of the year, many banks had earned well, which was also proven by many quarterly figures.
On the one hand, the imminent turnaround in interest rates by the European Central Bank (ECB) ensured rising margins in the lending business, on the other hand, the great demand for new loans resulted in growing – and better interest-bearing – loan portfolios.
At Deutsche Bank, for example, the pre-tax profit of the corporate customer division has doubled within a year and the division has achieved record profits. Among other factors, the growing lending business and better interest margins contributed to this.
“The demand for credit is very high at the moment,” confirms Peter Schneider, President of the Savings Banks in Baden-Württemberg. How it develops further depends on the further economic situation. According to Schneider, if there is no recession, credit demand will remain relatively high. “It’s the big picture that counts.”
KfW is skeptical – and is not alone in this. The Bundesbank’s quarterly survey, which was published in mid-July, came to a similar conclusion. According to the Bank Lending Survey, demand for loans is likely to have risen again in the second quarter, but is now weakening slightly overall.
Inflation and disrupted supply chains fueled boom
From KfW’s point of view, the trend reversal comes as no surprise. Many bankers and the development bank attributed the growth in the first half of the year less to an investment boom and more to the increased energy and raw material prices and disrupted supply chains.
“Companies want to finance larger storage, which should cushion disrupted supply chains. In addition, there is cost pressure due to the high inflation rates, since operating resources and capital goods are also becoming nominally more expensive,” writes KfW. Both factors increase companies’ financing needs.
The Bundesbank survey comes to similar conclusions. According to this, the demand for credit in the first quarter was fueled to about the same extent by investments in fixed assets and storage.
In the second quarter, on the other hand, the financing of warehouses and operating resources was by far the dominant motive. Demand for investment financing even declined.
In view of the current supply chain problems, many companies are expanding their own storage capacities.
(Photo: dpa)
That will probably not be enough as a driver for new loans in the coming months. “The problems in the supply chains and the sharp rise in prices should continue to support the financing volume. Overall, however, negative factors such as the great economic uncertainty are likely to gain the upper hand,” predicts Köhler-Geib.
The more cautious attitude of many banks when it comes to lending should also contribute to this. According to the Bundesbank, the financial institutions have only “slightly” tightened their lending guidelines for corporate loans, but they want to further tighten these lending criteria in the coming months.
Already in the second quarter, the institutes demanded more security and a higher margin from their customers – mainly because of the increased economic risks. In addition, the institutions surveyed rejected more loan requests.
Banks are becoming more restrictive
The credit hurdle calculated by KfW and the Ifo Institute showed in July that banks and savings banks are more restrictive, especially towards small and medium-sized enterprises. The KfW-Ifo credit hurdle rose “significantly” for this size class by 3.1 percentage points to 20.8 percent.
The KfW-Ifo credit hurdle indicates the percentage of companies that classify banking behavior in credit negotiations as “restrictive”. All sectors of the economy were affected by this trend, with the exception of retail trade.
Although the credit hurdle eased slightly overall for large companies, the credit conditions for individual sectors have deteriorated to a similar extent as for medium-sized companies. In the case of large companies, this applied above all to the retail and service sectors affected by inflation rates.
Assistance: Elisabeth Atzler
More: Europe’s banks are defying recession fears – but there are also losers.