KfW Credit Market Outlook:

• New lending to businesses in 2nd quarter of 2016 down just 0.7% from same period last year
• Access to credit remains good, but no sign of further improvements
• Credit market is expected to move sideways in the latter half of the year

KfW’s quarterly Credit Market Outlook estimates that lending by banks and savings banks in Germany to companies and self-employed persons contracted again in the second quarter of 2016, but by only 0.7% from the same period last year. That signals an end to the decline, although dynamic growth is still out of sight.

The credit market is not receiving enough impetus from either the supply side or the demand side in order for corporate lending to pick up significantly. The fact is that even though interest rates are low and access to credit is still historically good – not least thanks to finance institutions’ lack of investment alternatives – the trend of continually improving borrowing conditions is gradually coming to an end. Because their margins have narrowed, credit institutions therefore have little scope for further interest reductions. At the same time, the continuing good lending terms are proving to be insufficient to kick-start businesses’ investment activity and unleash credit demand. Second-quarter investment turned out weak after the encouragingly strong start to the year had given rise to hope for more dynamic increases. At the same time, the capital market is providing attractive financing alternatives to loans, particularly for large enterprises.

The outlook has dimmed as well. The UK vote to exit the EU has probably caused export-oriented firms in particular to exercise restraint. “New lending to domestic businesses outside the residential construction sector remains anaemic”, said Dr Jörg Zeuner, Chief Economist of KfW Group. “Significant increases are not likely until the end of the year either. Rather, I expect the credit market to move sideways.”

KfW Research calculates the KfW Credit Market Outlook exclusively for the German business newspaper Handelsblatt. It is available from: www.kfw.de/kreditmarktausblick.