KfW Research: Access to credit is becoming more difficult for businesses

• Share of enterprises reporting more restrictive bank policies is rising sharply
• Large manufacturing enterprises are particularly affected
• Credit demand is falling

Banks in Germany continued to tighten their criteria for loans to businesses in the third quarter. Difficult negotiations with financial institutions were reported by 34.5% of large enterprises, an increase of 8.7 percentage points on the previous quarter and 13.2 percentage points compared with the same period in 2023. That was a new high.

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.

“The main reason for the high number is the rapid deterioration in access to finance for large enterprises in the manufacturing industry”,

said Stephanie Schoenwald, financial market expert at KfW Research. Of the large manufacturing enterprises that were interested in taking up a loan, 40.4% perceived banks’ policies as restrictive, a 19.9 percentage-point increase on the preceding quarter.

“The ongoing industrial recession is likely to prompt banks to subject loan applications from this economic sector to a particularly rigorous appraisal”, explained Schoenwald.

Things were only slightly better for SMEs than for large enterprises in the third quarter. Barriers to obtaining loans were reported by 31.5% of enterprises, 3.7 percentage points more than in the previous quarter.

Demand for loans also fell further, after recovering in the first and second quarters. The proportion of large enterprises that were in negotiations for loans with banks fell by 5.2 percentage points to 27.7%. Among small and medium-sized enterprises, the share was 20.3%, a 0.9 percentage-point decline.

“Credit demand from small and medium-sized enterprises has lacked dynamic already since 2021. Since then, the share of enterprises seeking a loan from a bank has oscillated around 20%. This sideways movement also continued in the third quarter of 2024”,

said KfW economist Schoenwald.

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

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