Brexit vote postpones turnaround in trend for new lending business with companies

• German banks once again issue fewer loans to companies and the self-employed in first quarter
• Rate of decline is stable, however
• KfW Research expects new lending business to pick up again by the end of the year at the earliest

According to KfW Research's estimates, the volume of new business entered into by German banks and savings banks with companies and the self-employed continued to decline in the first quarter of 2016. The current KfW Credit Market Outlook for the quarter is down 2.4% year-on-year, but the rate of decline has stabilised. The fact that a slight increase in corporate investment can be observed for the period from January to March actually provides hope for the development of the corporate lending market moving forwards. However, the uncertainty that has arisen since the Brexit vote regarding the future economic conditions on either side of the English Channel is likely to postpone the anticipated recovery in lending to companies until the end of 2016.

“The Brexit vote will put a damper on the burgeoning willingness of German industry to invest. Companies will probably put some of their planned investments 'on ice',” predicts Dr Jörg Zeuner, Chief Economist at KfW Group. “This will impact the new lending business. Despite favourable conditions for financing in the months ahead, we will not see any turnaround for the time being”. However, Zeuner expects the vote for Brexit to result in short-term irritations only. “Germany's essentially robust economy will only experience a slight dip but not slide into a recession. Having just seemed within our grasp, the return to positive growth rates in the new lending business is likely to be delayed as a result, but it will come”.

KfW Research estimates the trend for the new lending business with companies and the self-employed in Germany on the basis of the statistics published by the Bundesbank regarding changes in lending volumes – excluding loans to financial companies and industrial housing loans, and based on simulated repayment behaviour. The overall volume of lending continues to rise, mainly on account of the dynamic growth of industrial housing loans, which are benefiting from the robust domestic economy, low interest rates and the search for alternative investment opportunities.

KfW Research calculates its Credit Market Outlook exclusively for the Handelsblatt newspaper. The analysis can be accessed at www.kfw.de/kreditmarktausblick,