Frankfurt. After several years of lull, business with new loans for companies and the self-employed has picked up significantly. “With an increase of 3.4 percent compared to the same quarter of the previous year, it recorded the strongest growth since the end of 2022,” writes KfW in its current credit market outlook, which the state development bank prepared exclusively for the Handelsblatt.
Developments in the lending business are an indicator of companies' willingness to invest and thus also of the chances of an economic recovery. To determine new business, KfW analyzes the changes in the loan portfolio collected by the Bundesbank and estimates the scheduled repayments.
KfW excludes loans for housing construction or to insurers and financing institutions such as factoring or leasing companies from the data.
Despite the significant increase, KfW's outlook remains cautious. “The second quarter does not represent a trend reversal,” said Jenny Körner, credit market expert at KfW Research, to the Handelsblatt.
"At first glance, the increase in new business seems encouraging. But the triggers for it are not." According to Körner, the energy price shock may have driven up many companies' need for liquidity. “You can see this in the fact that part of the higher demand is due to short-term working capital loans,” says Körner.
Corporate customer experts from commercial banks confirm this observation. “Energy costs and rising prices are one reason why companies maintain or expand working capital loans,” says Thomas Jost, who heads corporate financing in German-speaking countries at Deutsche Bank. He is also observing that companies are extending existing loans in order to secure liquidity.
So only a portion of the new loans flows into investment projects. “Demand for investment financing remains subdued among medium-sized companies,” says Sabrina Kensy, head of Commerzbank’s corporate customer lending business. This is not surprising given the geopolitical uncertainties and weak growth prospects in Germany.
“At the moment, companies are investing a lot in transformation, in energy independence or security and digitalization,” says Kensy. That is important and good. Long-term investments, for example in new production capacities, are rarer.
“Companies are reacting to the current uncertainty and investments in the future are often neglected,” emphasizes Kensy. But there are also individual sectors that are growing faster. “This applies, for example, to defense or renewable energies.”
Deutsche Bank is observing demand for loans from new companies among medium-sized companies, “for example when financing scale-up companies, i.e. young, fast-growing companies; or selectively when it comes to financing takeovers,” says financing expert Jost.
"There is stronger growth among large companies, which is driven primarily by the energy sector, which is expanding its infrastructure. This is a strong driver of investment," said the Deutsche Bank manager.
From KfW's perspective, one factor that could dampen the recovery of the credit market is the development of financing costs. “The rising interest rates could become an increasing braking factor for the lending business in the next few months,” says KfW expert Körner.
Since the outbreak of the Iran War in February of this year, financing costs for companies have become more expensive, writes the financing specialist FCF Fox Corporate Finance in its current interest rate & credit monitor.
According to FCF estimates, financing costs have increased by around 1.4 percentage points since February to five percent recently. KfW assumes that some companies also took out long-term loans in the spring in order to secure cheap financing.
And while companies with good credit ratings can still get loans relatively easily, the search for companies with weak credit ratings or a difficult industry is more complicated from FCF's perspective.
Divisional director Kensy confirms that “reliable planning, creditworthiness, industry and a sustainable business model” play a role for banks. “These are essential factors that make financing possible,” says the Commerzbanker.
“Due to the economic situation and uncertainty, the demands on customers in this area have increased; we support our customers with tailor-made solutions.”
Due to rising interest costs and the possible advance borrowing of some companies, KfW assumes that growth in new lending business will weaken significantly again in the third and fourth quarters. The development bank expects growth to be only half as high, with an increase of 1.6 percent and 1.2 percent respectively.
Deutsche Bank is more optimistic about developments in corporate banking. From the perspective of corporate customer manager Jost, the fear of rising interest rates hardly plays a role anymore. “The markets are now pricing in, at best, slightly rising interest costs,” he says.
In any case, he has not yet observed a slowdown in the lending business. “The moderate growth that began in the second quarter continued in the third quarter,” he says. “In view of the still difficult environment, this is an encouraging development.”
