German banks tightening credit guidelines for corporate customers

As revealed in the current Bank Lending Survey evaluation for July, a small majority of the institutions surveyed would like to introduce stricter guidelines for granting loans to corporate customers in the months ahead. This will affect both small and medium-sized enterprises as well as large enterprises. By tightening their credit guidelines for the first time since April 2015, banks are responding to the current economic slowdown. The deceleration in economic growth to be feared for this year and next can be largely attributed to the international trade disputes as well as other geopolitical risks. The strongly exporting German SMEs and large-scale corporates would be particularly affected by a further escalation of protectionist measures.

However, there is no reason at this juncture to fear a slump in loan granting to corporate customers: on the one hand, only a small majority of banks have so far planned to tighten their credit guidelines. On the other hand, the growth of corporate loan portfolios has accelerated strongly of late and taken over from private residential construction loans as the growth driver of the German credit market. If the pace of corporate credit growth were now to decelerate again somewhat, this would not be all that serious but would instead be an expression of a responsible lending policy that will find reflection in a very low rate of non-performing loans among German banks as compared to international standards.

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