KfW ifo Credit Constraint Indicator: Banks are making credit more accessible for SMEs again

• SMEs are seeking more credit while large enterprises see their appetite for loans hit a new low
• Credit constraint has eased for SMEs
• Banks are increasingly reluctant to lend to large enterprises

After demand for credit by small and medium-sized enterprises bottomed out in the summer of 2021, the new KfW ifo Credit Constraint Indicator is now showing a gradual trend reversal. In the first quarter of 2022 more than one fifth (20.6 %) of surveyed SMEs in Germany reported having held loan negotiations with banks (+1.3 percentage points on the previous quarter). SMEs’ appetite for bank finance is still low compared with the long-term average of 26 %, however. The low credit demand from large enterprises even continued to decline. Only 26.3 % of them (-1.5 percentage points) requested a loan from their bank. That was the lowest share recorded since the beginning of the time series in 2017.

Access to credit improved in the first quarter for those small and medium-sized enterprises that applied for a loan. The KfW ifo Credit Constraint Indicator fell to 17.7 % and has thus decreased by nearly 5 percentage points within a year. Given Russia’s attack on Ukraine, it is doubtful whether the easing of credit constraints will continue. “The war in the heart of Europe is weakening the economy through a massive increase in the cost of energy and worsening bottlenecks in the supply of materials, and it is generating enormous uncertainty. Financial institutions are therefore likely to reassess default risks and readjust their lending policy”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. The sharp tightening of credit constraint for large enterprises (+6.2 percentage points to 14.2 %) could be a first sign of this. Manufacturing firms, which are closely integrated into the international division of labour, have been hit particularly hard. The proportion of businesses in this sector that observed a restrictive lending policy on the part of banks more than doubled within the space of a quarter.

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