KfW ifo Credit Constraint Indicator: Challenges are mounting for businesses requesting loans

• In the third quarter, 31.7% of SMEs described banks’ position in loan negotiations as restrictive
• Credit constraint for large enterprises stood at 21.3%
• Demand remains subdued

In the eyes of businesses, the barriers to obtaining a bank loan have increased again, and considerably. The KfW ifo Credit Constraint Indicator for small and medium-sized enterprises surged by 6.1 percentage points in the third quarter of 2023. The share of German SMEs reporting that their banks were restrictive in loan negotiations rose to 31.7%. This slightly exceeded the previous record high since the revision of the survey methodology in 2017, which was 31.3% in the fourth quarter of 2022. During the financial market crisis and at the beginning of the 2000s, however, an even higher percentage of businesses surveyed reported facing stricter credit access conditions.

The growing difficulties in accessing credit affected small and medium-sized enterprises of all economic sectors. Loan applications from the services sector (32.9% / +6.4 percentage points) and manufacturers (32.4% / +7.4 percentage points) were subjected to particularly rigorous scrutiny from banks. Large enterprises, too, reported that banks were again adopting a more restrictive approach. Credit constraint for this company size class increased by 3.4 percentage points to 21.3%.

“The challenges which businesses face in loan negotiations are growing”

, summarised Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“This is probably due in part to the continuing interest rate rises. Lately, average rates payable on corporate loans surpassed 5%. That’s another significant markup on the 4.7% of the second quarter. Moreover, a further tightening of lending policies as a result of the more depressed economic sentiment and an associated reassessment of risks by banks is also plausible.”

At the same time, credit demand by businesses remains subdued. Following increased demand in the spring, the number of businesses requesting bank loans was down again in the third quarter. The proportion of companies surveyed who were in loan negotiations dropped to 20.2% among SMEs and 30.4% among large enterprises. However, the decline was only a moderate 1.4 percentage points in both size classes.

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

KfW-ifo Credit Constraint Indicator | KfW