Frankfurt German companies and the self-employed continue to borrow large amounts of money from banks and savings banks. New lending business is likely to have increased at a record-breaking rate in the third quarter. This emerges from the latest credit market outlook, which the state development bank calculates exclusively for the Handelsblatt.
As early as the second quarter, new lending business is likely to have increased by “immense 21.3 percent” compared to the previous year – according to KfW, this is a record high. For the third quarter, the development bank is even assuming a further increase. “At the peak, new lending business could grow by 25 to 35 percent,” says the credit market outlook. Many financial institutions had tightened their lending criteria in the third quarter.
The development bank did not expect this development. KfW Chief Economist Fritzi Köhler-Geib says: “The increase in new business surprised us to this extent.”
To calculate new lending, KfW analyzes the changes in the loan portfolio collected by the Bundesbank on a quarterly basis and makes assumptions about scheduled repayments, which are then added. The KfW calculates housing loans and loans to insurers and financing institutions from the Bundesbank data.
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The development bank had originally expected the dynamic credit growth to weaken in the second half of the year. Instead, new business is growing in proportions last seen in the first quarter of 2008, when many companies built up as large a liquidity cushion as possible because of the looming financial crisis. “The growth is even higher than the values at the beginning of the corona pandemic,” emphasizes Köhler-Geib.
Commerzbank is also registering high demand
There are special factors that have contributed to the extremely high growth rates: The loans to energy suppliers, which KfW grants on behalf of the federal government to secure the gas supply, contribute to the high volume. There is also a statistical effect: In the previous year, lending had developed relatively weakly. “But even without these two special effects, according to our estimates, the loans from German banks would still have risen very sharply by around ten percent,” analyzes KfW.
This is consistent with statements made by industry representatives. In the corporate customer business, the demand for credit is still high, reported Commerzbank CFO Bettina Orlopp. Many companies raised short-term liquidity in the third quarter to finance inventory or other purposes. “We assume that we will see further demand here,” said Orlopp.
Orlopp’s statements are consistent with the results of the Bundesbank’s most recent Bank Lending Survey, a quarterly survey of the central bank among banks on the lending business. She came to the conclusion that many companies “in the face of unstable supply chains for intermediate products and in anticipation of further rising costs have increased their stock levels and have increasingly resorted to bank loans for this purpose”.
However, the great interest in such working capital loans is also a consequence of the current crisis: “This reflects above all the ever-increasing costs for intermediate goods and the massive increase in energy prices, which are putting companies’ liquidity planning under stress,” writes Die KfW.
From the perspective of the development bank, the problems in the supply chains are also an important factor. “There are signs of relaxation on this point worldwide, but this factor is persistently causing problems in Germany,” emphasizes Köhler-Geib.
There are signs of relaxation on this point worldwide, but in Germany this factor is causing persistent problems. KfW Chief Economist Fritzi Köhler-Geib
“We are in an exceptional economic situation. That explains why companies are taking on additional debt to an unusual extent despite the looming recession,” summarizes KfW.
A look at the terms of the financing shows how much working capital loans shape new business. “Short and medium-term loans account for the lion’s share of the increase in new business,” says KfW chief economist Köhler-Geib. Such terms are typical for financing warehousing or the purchase of goods. For investments, on the other hand, companies typically agree longer terms.
KfW observes “certain upward trend” in long-term loans
This does not mean that investment financing would be completely absent. In principle, there is “a great need for investment” among many corporate customers due to the digital and sustainable transformation of the economy, says Commerzbank manager Orlopp. She has the impression that these issues continue to be of great importance for many companies, despite various other crises.
On the brake
KfW Research estimates that medium-sized companies will spend less on investments this year.
KfW is also observing “a certain upward trend” in longer-term loans, although many medium-sized companies want to postpone investment projects. However, KfW chief economist Köhler-Geib believes it is possible that these longer-term loans will finance investment projects that are already being implemented – and which have become more expensive due to inflation.
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Even if the current credit boom is possibly more persistent than the economic situation would suggest, in the long term Köhler-Geib expects lending to slow down. When it comes to new investments, companies are likely to become more cautious in the recession.
In its bank survey, the Bundesbank is already observing that companies’ willingness to invest – and with it the demand for long-term loans – has fallen. KfW Research estimates that medium-sized companies will reduce their planned investments by around EUR 60 billion this year.
David Lynne, head of corporate customer business at Deutsche Bank, also said: “The weak economy is likely to dampen demand for classic corporate loans.” “.
In addition, many banks are currently planning even stricter requirements for the lending business. The most important reason for the financial institutions: From their point of view, the economic risks associated with lending have increased. That’s why financial institutions are already saying “no” from time to time: “The rate of loan rejections increased noticeably compared to the previous quarter,” reports the Bundesbank.
German banks are thus in a quandary: Since interest rates have been rising again, the lending business has made a significant contribution to the fact that many German financial institutions have earned very well in the current year. On the other hand, in a recession there is an increased risk that companies will no longer be able to repay their financing. At a conference in Frankfurt, the head of the banking supervisory authority ECB, Andrea Enria, warned recently: “If you take a snapshot now, everything looks shiny and proud. But looking ahead, caution is advised.”
However, KfW chief economist Köhler-Geib is cautious with forecasts as to when the gloomy economic outlook could cause the lending business to slow down. “The forecast uncertainty is currently very high, partly because we haven’t seen such inflation rates since the 1970s,” she says.
More: “We are assuming a lull in new business”: The trend reversal is imminent on the credit market