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Press Release from 2021-01-28 / Group

KfW ifo Credit Constraint Indicator: Credit demand by businesses has dropped sharply – banks are becoming more restrictiv

  • Share of enterprises engaged in loan negotiations fell to new low in fourth quarter
  • Slump in demand mostly due to weak investment activity
  • Credit constraints rose slightly for SMEs and sharply for large enterprises

In the last months of 2020, new restrictions had to be imposed on business activities in response to the sharp rise in COVID-19 infections, leading to renewed massive turnover losses for businesses in the affected sectors. Yet businesses’ interest in bank loans downright plummeted in the final quarter of 2020. The share of SMEs that were in loan negotiations with banks fell by around 8 percentage points to 22.1%. The drop among large enterprises was even more pronounced, at nearly 11 percentage points. Most recently, only 28.7% of companies in this size class were still negotiating loans with their banks. These were the lowest levels ever recorded since surveys began in 2017.

“In the second coronavirus wave so far there has been little interest in bank loans; companies’ demand has dropped to a record low”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “The likely main reason is that businesses are very reluctant to invest because of uncertainty about the further course of the pandemic. That is understandable from a business perspective but has severe consequences for the overall economy in the medium term. It will cause the backlog in major structural issues such as digitalisation and sustainability to grow bigger and bigger. According to preliminary figures released by the German Federal Statistical Office, companies invested 6.6% less in their businesses in 2020 than in the previous year. Demand for debt capital was also reduced by the fact that manufacturing, a significant part of the economy, is hardly affected by restrictions, unlike in spring. Besides, the government’s additional financial support for businesses has limited liquidity shortages – despite all problems. Another aspect which I believe plays a role is that as the crisis grinds on, some businesses may no longer be able or willing to take on additional debt burdens to offset losses in turnover.”

However, the difficulties are growing for enterprises that currently want to borrow. In the fourth quarter the KfW ifo Credit Constraint Indicator for SMEs grew only minimally by 0.4 percentage points but for the sixth consecutive time, to now 22.1%. Banks were particularly restrictive towards loan applications from SME service providers (29.5%), while manufacturing SMEs reported that their situation improved (16%). These sector-specific differences in credit access reflect the asymmetrical impact of the pandemic on economic sectors. After the respite in the third quarter, large enterprises are facing greater difficulty in accessing bank loans as well. Following a strong rise of nearly 5 percentage points, almost one fifth of large enterprises encountered sceptical financial institutions in the final quarter of 2020.

The KfW ifo Credit Constraint Indicator is available for download at KfW-ifo Credit Constraint Indicator.


Portrait Christine Volk


Christine Volk

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