New lending business in Germany on upward but rocky path

• 1.0% increase of new business loans in the third quarter
• KfW Research expects more growth in the final quarter but is only cautiously optimistic for the coming year
• Limited by continuing low level of investment confidence

The new lending business of German banks and savings banks with companies and the self-employed returned to growth in the third quarter of 2016 for the first time since spring 2015. It climbed by 1.0% year-on-year, as shown in the current KfW Credit Market Outlook. KfW Research expects more growth in the new lending business in the final quarter but is only cautiously optimistic with regard to the development in the coming year. The general level of willingness to invest of companies, which is closely linked to the loan demand, continues to be relatively weak. This is likely to dampen credit market dynamics in 2017.

The upturn in the new lending business with companies and the self-employed this summer came as a surprise, as it took place in the months after the Brexit decision. The companies had only temporarily put their lending activities on hold. After the dust of the referendum had settled in July, bank lending picked up again, and the new lending business even increased overall in the quarter compared to the prior-year period. New long-term loans were especially sought after, most of them for capex financing purposes. This could be an indication of corporate investment picking up again slightly towards the end of the year after two weak quarters.

"The increase in the corporate new lending business is good news, but we mustn't read too much into it," Dr Jörg Zeuner, Chief Economist of KfW Group, comments. "While the positive conditions on the credit market and the robust German economy give the market an additional boost, companies' willingness to invest continues to be rather low. Given the increase in political uncertainty on both sides of the Atlantic Ocean, I don't expect a substantial trend reversal for investments in the coming year either. The path of the new lending business is therefore upward, but still likely to be rocky."

KfW Research calculates its Credit Market Outlook exclusively for the Handelsblatt newspaper. The current edition is available at www.kfw.de/kreditmarktausblick.