Optimism fades in corporate banking

After Germany’s gross domestic product (GDP) was still able to grow by 1.5 percent in 2018, last year it was only 0.6 percent. After all, this is the tenth year in a row that GDP has increased. Last year, however, the economy only declined in the second quarter. In the third quarter, it picked up again somewhat, but stagnated in the final quarter. Foreign trade in particular, but also weak investment in machinery and equipment, was responsible for the unsatisfactory result. Construction investment and consumption were significantly better. However, the spread of the corona virus this year brings with it a new risk for the German economy.

The weak economy in the final quarter of 2019, and in particular the further quarter-on-quarter decline in investment in machinery and equipment, is partly responsible for the fact that corporate loan portfolios in Germany are continuing to lose momentum. Only long-term loans with maturities of over 5 years and loans for residential construction are still enjoying increasing popularity. The market for loans to economically dependent and other private individuals is determined above all by the good demand for housing construction loans.

Pessimism is becoming increasingly widespread in the corporate lending business of banks in the eurozone and in Germany. This applies to the demand for loans from export-oriented industrial companies that are suffering from the economic environment. However, it also affects the development of lending rates, which in Germany stabilized following a slump towards the end of last year. However, against the background of the economic risks posed by the spread of the corona virus, the probability of further interest rate cuts and bond purchase programs by central banks is increasing. As a result, a possible turnaround in the ECB’s monetary policy is also becoming more distant. In view of the already extremely low interest rates, a further easing of monetary policy can hardly be expected to stimulate investment and demand for credit. However, the banks‘ recently budding hopes of a noticeable rise in lending rates are likely to evaporate again as a result.

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