KfW ifo Credit Constraint Indicator: Borrowing demand from SMEs remains weak

• Only 18% of small and medium-sized enterprises were in loan negotiations in the third quarter
• Credit constraint has risen moderately for SMEs
• Credit demand is set to remain below average for the time being

The downward trend in credit demand from small and medium-size enterprises continued unabated in the third quarter. The KfW ifo Credit Constraint Indicator shows that between July and September, only 17.7% of SMEs in Germany were in loan negotiations with banks and savings banks (-1.8 percentage points on the previous quarter). The rate thus hit a record low for the third consecutive quarter. Demand for bank loans from large enterprises also dropped again. The decline was only a marginal -0.3 percentage points, but with 27.6% of large enterprises in loan negotiations, the rate also fell to a new low since the survey began in the year 2017.

One in five (20.1%) of SMEs that applied for credit experienced more restrictive lending practices on the part of banks – again slightly more than in the previous quarter (+1.7 percentage points). The credit constraint thus remains at an above average level but is still lower than at the start of the year. Small and medium-sized service providers were particularly affected by tighter lending policies (+6.6 PP to 26.9%), while manufacturing SMEs faced only minor tightening despite persistent supply bottlenecks (+1.9 PP to 17.3%). Small and medium-sized enterprises from the retail, wholesale and construction and civil engineering sectors, however, even benefited from significantly easier credit access. Credit constraint for large enterprises is moving sideways and, at 12.9%, remains slightly above the average recorded since the year 2017.

“I expect below-average credit demand to continue in the months ahead”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “The economic recovery and government subsidy payments of now more than EUR 50 billion have improved companies’ financial position. Businesses also deposited unusually large amounts in bank accounts during the coronavirus crisis. Companies can use this liquidity for upcoming financing requirements, for example for investment expenditure. On the supply side, I see little scope for improving credit access. The persistent disruptions to global supply chains and the steep rise in energy costs are relevant risk factors which financial institutions are likely to be increasingly mindful of in their lending decisions.”

The current edition of the KfW ifo Credit Constraint Indicator is available at: KfW ifo Credit Constraint Indicator