Growth in credit markets in Germany expected to accelerate

Last year, the surge in growth in Germany’s credit markets seen from the end of 2015 onwards stabilised and intensified. Corporate and private households’ bank debts rose 2.7 percent to EUR 2,372.3 billion. In other words, the usually sluggish trend of past years was at long last overcome. Private property financing was again the growth driver. With stronger new building activity and increasing demand, as well as rising prices in the property markets, the need for credit grew appreciably. Demand was also buttressed by extremely favourable financing terms. The only thing preventing even more buoyant growth was the translation of the EU Mortgage Credit Directive into German law, which led to stricter regulations for loan approvals above all for senior citizens and young families. The trend for corporate credit was also gratifying: From 2013 to 2015 this market segment saw only weak, indeed usually negative change rates. However, in 2016 the corresponding loan portfolios grew by just short of two percent.

In the current year, the trends look set to continue. This is indicated, among other things, by the number of building approvals, which have soared. However, already last year construction companies frequently reached capacity limits and in 2017 there are likely to be even more bottlenecks, meaning not all the approved buildings may be realised quickly. Nevertheless, we expect that the number of commissioned new builds will increase by about ten percent to between 290,000 and 300,000 flats. The ongoing high demand for existing properties will presumably further boost credit demand. Since reforms have since been resolved that remove the exaggeratedly restrictive impact of the EU directive on loan approvals for private households, hardly anything now stands in the way of servicing this rising demand for loans.

This year, again it is primarily the construction of flats that is contributing to growth in macroeconomic investments. However, investments in fixed assets such as machines, equipment and vehicles will probably also climb triggering corporate demand for credit. Against the backdrop of a steady economic trend in Germany, there is, moreover, little cause for banks to tighten their credit terms for corporate clients. One can therefore expect to see the stabilisation of the market for corporate loans already discernible in 2016 to persist.

On balance, the volume of credit extended to companies and private households this year will probably grow by about three percent. In other words, the pace of growth will accelerate again, although on a long-term comparison and above all in light of the extremely favourable financing terms and the massive outlays the ECB is committing in the context of its monetary policy, such growth in credit remains modest.

 

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