New lending business: Companies proving keen!

• In the first quarter, up 4.8% year-on-year
• Positive trend likely to continue
• Low interest rates making long durations attractive

New lending from German banks and savings banks to companies and the self-employed, which is much valued by KfW, increased in Q1 2015 by 4.8% year-on-year. The current KfW Credit Market Outlook reveals that long-term loans with a duration of more than five years experienced particularly strong growth. KfW Research is expecting a continuation of the positive trend observed since autumn 2014 on the credit market, and anticipates Q2 growth of 4% compared to the same period in the previous year (two quarter moving average).

"After a long period of weakness, the corporate credit market is finally growing at a respectable pace. Firms are investing more again," said Dr Jörg Zeuner, Chief Economist at KfW. "However, to successfully counter chronic low investment, this development will have to persist and gain in strength. The good economic prospects for Germany and the excellent terms of financing for companies are providing tailwind." But the developments surrounding Greece harbour the risk that the resultant uncertainty could adversely impact companies' willingness to invest, Zeuner cautioned.

The supply situation on the German credit market remains extremely favourable. The ifo credit constraint indicator tumbled from one record low to the next, and stood at just 15.7% in May, meaning that only one in seven of companies polled report that bank lending is restrictive, and that figure is not even one in ten for large companies. The lending conditions have further improved this past quarter, driven by competition among banks.

Nevertheless, the most important reason for the revival in new lending is probably low interest rates. For loans with durations exceeding 5 years, German banks were demanding an average of just 1.75% in March 2015, in other words a further 100 basis points lower than in the previous year. So despite a financial position that remains excellent and only moderate growth in corporate investment, loans are increasingly being utilised for financing.

The current KfW Credit Market Outlook can be downloaded at: www.kfw.de/KfW Credit Market Outlook..