KfW ifo Credit Constraint Indicator rises as coronavirus makes banks more cautious

• Indicator climbs to highest level since 2017
• Funding requirements rise as a result of the crisis: more SMEs are negotiating loans
• KfW’s Chief Economist Fritzi Köhler-Geib: “Compared with the financial crisis of 2009, difficulties in accessing credit are moderate”

The coronavirus crisis is leading to significant declines in German SMEs’ turnover and depleting their liquidity. The resulting funding requirements are reflected in rising demand for bank loans. But accessing credit has become more difficult for a growing proportion of firms because banks are negotiating loans with more restrictive terms, according to the KfW ifo Credit Constraint Indicator for the second quarter of 2020.

It shows that the share of surveyed SMEs that have negotiated loans with banks has increased noticeably from 25.0% to 31.5%. At the same time, a good one fifth of SMEs, or 20.4%, reported that banks are conducting loan negotiations on more restrictive terms. Compared with the previous quarter, the KfW ifo Credit Constraint Indicator rose by 3.1 percentage points, reaching the highest level since the new survey methodology was introduced in 2017.

The Chief Economist of KfW, Dr Fritzi Köhler-Geib, commented as follows: “Considering the significantly increased loan default risks due to the deep recession, the difficulties which SMEs are experiencing in accessing credit are still limited. During the global financial crisis of 2009, more than 40% of the surveyed small and medium-sized manufacturing firms complained about credit constraints. Financial institutions are in better shape today, and at the same time the comprehensive economic support measures are helping to reduce the negative effect on banks’ willingness to lend during the current crisis.”

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