KfW ifo Credit Constraint Indicator: Business credit demand remains subdued – access to credit is becoming more difficult for SM

• Share of small and medium-sized businesses seeking loans fell to new low in first quarter
• Share of large enterprises in loan negotiations has stagnated on a low level
• Banks are restricting their lending – but only for SMEs

According to the KfW ifo Credit Constraint Indicator for the first quarter of 2021, demand for bank loans from businesses in Germany continued on a low, below-average level at the start of the year. The share of SMEs in loan negotiations dropped to 20.6% (-1.5 percentage points), the lowest level since surveys were first conducted in 2017. Demand from large enterprises also remained subdued, with the share of companies in loan negotiations rising only marginally by 0.2 percentage points to 29%.

“The uncertainty created by the pandemic continues to put the brakes on businesses’ investment behaviour and, hence, credit demand”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “In the sectors hit particularly hard by restrictions such as hospitality, the strained financial situation – sometimes coupled with survival fears – is likely to be preventing many a business from borrowing more. Instead, companies that have been particularly affected are likely to prefer bridging assistance from the government, special write-downs and (equity) grants.”

Sectoral and size-related differences are evident in those businesses that currently still seek bank loans. The KfW ifo Credit Constraint Indicator has thus increased steadily for SMEs since March 2020 and is now at 22.5% (previous quarter 21.9%). “As expected, banks are being particularly restrictive towards small and medium-sized service providers that were hit hard by the pandemic (27%), and now also towards retailers (27.9%)”, said Köhler-Geib. Small and medium-sized construction firms now reported fewer borrowing difficulties (6.6%). With the exception of wholesalers, large enterprises are now much more successful again at securing a bank loan. Manufacturers in particular can obtain finance much more easily again (-14.4 percentage points to 9.5%), which is likely due to the economic recovery, especially the growing demand for exports.

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