Political and economic headwinds be damned, it seems companies in Europe’s largest economy are borrowing at the fastest rate in more than a year.
The demand for new loans among businesses and the self-employed grew by 1 percent in Germany during the third quarter of the year, the first increase since early 2015, according to a market survey by the state-owned development bank KfW.
Jörg Zeuner, KfW’s chief economist, said attractive credit market conditions, created by the European Central Bank’s zero-interest policy, and robust economic growth in Germany fueled the increase in demand.
“There is an upward trajectory in the market for new loans, but it may become choppy.”
Mr. Zeuner, however, cautioned against reading too much into the uptick. Businesses remain hesitant to make new investments, he said.
KfW projects that new lending will slow to 0.5 percent growth in the final three months of 2016 – a quarter that saw the shock election of Donald Trump in the United States.
“I don’t expect a clear change in trends for the coming year given the increase in political uncertainty on both sides of the Atlantic,” Mr. Zeuner told Handelsblatt. “There is an upward trajectory in the market for new loans, but it may become choppy.”
The European Central Bank also recorded a 2.2-percent increase in business lending in the euro zone during November. The increase in demand has surprised many experts, who expected a slump in the wake of Britain’s decision to leave the European Union. But low lending costs and loose restrictions fueled growth.
According to an analysis by Deutsche Bank, many financial institutions have eased their lending conditions. The proportion of companies struggling with lending restrictions has fallen to 14.5 percent, according to the IFO Institute for Economic Research in Munich.
The European Central Bank has also kept interest rates at the record low of 0.0 percent and has extended its €80-billion monthly bond-buying program by a full year. As a result, the cost of lending was very cheap in 2016 and will remain so in 2017, according to IFO.
Indeed, the interest rate on loans for businesses and the self-employed has dipped below 2 percent for the first time in history, according to Deutsche Bank.
As the cost of lending falls, however, the price of depositing money has increased. Banks have imposed negative interest rates on larger companies in response to the ECB charging banks that park their own reserves with the central bank.
German companies paid €200 million to deposit their liquidity in 2016, according to Deutsche Bank.
The fact that interest rates are so low also means Germany’s struggling banks won’t necessarily benefit from lending more money. Though the demand for loans has increased, the banks are still struggling with their profit margins.
“The margins are under pressure as before,” said Peter Barkow, the managing director of Barkow Consulting. The surplus of credit remains as high as before, Mr. Barkow said.
KfW is optimistic that the demand for new loans will continue to increase in the fourth quarter of 2016, though at a slower place. In the first three months of 2017, however, the demand for new loans will actually decline by 0.5 percent.
Peter Köhler is correspondent for Handelsblatt in Frankfurt covering banks and financial investors. To contact the author: Koehler@ handelsblatt.com