KfW Research: Banks are more restrictive in their lending practices

• One in four businesses report difficult loan negotiations
• Large enterprises are even experiencing tighter credit constraints than in the energy crisis of 2022
• Businesses are showing a growing interest in loans

Enterprises in Germany had more problems accessing loans again in the second quarter. The share of large enterprises reporting difficult loan negotiations surged by 5.1 percentage points on the first quarter to 25.8%. That means credit constraints for large enterprises even surpassed the peak recorded during the energy crisis in the year 2022. Banks’ lending practices were described as restrictive by 27.8% of small and medium-sized enterprises, a rise of 1.5 percentage points on the previous quarter.

These are the findings of the KfW ifo Credit Constraint Indicator. Every quarter, KfW analyses the data collected in the economic surveys of the Ifo Institute by size classes and economic sectors.

In the second quarter, slightly more enterprises were interested in borrowing again in principle. Among the group of small and medium-sized enterprises, 21.2% of firms discussed financing with their bank, a mild increase of 0.7 percentage points on the previous quarter. Still, the sideways trend that has persisted on a below-average level for the past two years is continuing.

The recovery of credit demand among large enterprises is already much more advanced. The share of enterprises interested in borrowing rose by 0.4 percentage points to 32.9% in the second quarter, surpassing the average since 2017 for the first time since the summer of 2020.

“Businesses are currently experiencing greater restraint on the part of banks in accommodating their requests for credit. Banks’ cautious approach to lending is likely driven by the stalling economic recovery”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“Credit demand remains below-average among small and medium-sized enterprises. That is unlikely to change until their readiness to invest increases significantly again on the back of more stable economic prospects.”

The current edition of the KfW ifo Credit Constraint Indicator is available at: KfW ifo Credit Constraint Indicator