New lending to businesses has stagnated

• Lending to enterprises and self-employed still on previous year’s level
• Banks remain cautious in their lending practices
• Credit demand is restrained, crisis-related liquidity requirements have largely fallen
• High interest rates and weak economic outlook are dampening appetite for investment finance

KfW Research has calculated that new lending from German banks to enterprises and self-employed persons remained just barely below the level of the previous year’s first quarter (-0.2 %), after record growth rates in the past year. Available data on the credit market already indicate stagnation for the second quarter. Given that new commitments are fluctuating strongly as a result of ongoing crises, it is important to monitor not just changes in annual growth rates but long-term trends in assessing credit supply in the real economy. Enterprises continued to borrow new funds on quite a high level in the first three months of the year, so broadly speaking, the lending channel appears to be open. Nevertheless, banks are taking a close look at loan applications.

After easing lending criteria at the start of the year, lenders did not relax them further in the second quarter. Large enterprises in particular viewed banks’ practices as more restrictive again. Furthermore, in the Deutsche Bundesbank’s July Bank Lending Survey most finance institutions reported that they tightened their credit policies for business loans again. Banks do not expect any further tightening for the summer quarter. The restrictions on lending to corporates thus continue to be quite moderate compared with the financial market crisis of 2008 / 2009.

The development of new lending business is currently being decided primarily on the demand side. The influencing factors already weighing on the first quarter are still in place. For one thing, crisis-related funding requirements are likely to have largely decreased. Prices in energy markets are largely steady, and supply chain problems are also easing further. For another, interest rates on business loans continued to rise steeply in the wake of the monetary policy reversal. At 4.81 % in May, the average costs of loans identified by the ECB for corporate customers rose to a level last seen around 15 years ago. This has generally discouraged the appetite for debt, in particular for investment projects, which are also suffering from the dismal economic outlook.

Dr Fritzi Köhler-Geib, Chief Economist of KfW, commented on the developments in the credit market as follows:

“Given the pent-up demand and investment required for digitalisation and the green transformation, price-adjusted business investment in 2023 will likely remain roughly on the level of the previous year, and even despite the dampening effect of high interest rates. Under the further assumption that there will be no new distortions that could abruptly lead to new economically relevant liquidity requirements, we expect new lending commitments to stabilise on the current level in the second half of the year. Nevertheless, credit growth will be deeply negative compared with last year. This is because there was a crisis-induced extreme expansion of credit in the summer quarter of 2022.”

Note: KfW Research calculates the quarterly KfW Credit Market Outlook exclusively for the German business newspaper Handelsblatt. The current edition is available at:

www.kfw.de/kreditmarktausblick