According to estimates by the credit insurer Allianz Trade, the latest bank turbulence will lead to more company bankruptcies in the current year. For Germany, Allianz Trade expects an increase of a good fifth (22 percent) compared to the previous year to around 17,800 cases.
“Due to the now even more restrictive bank lending, more companies are likely to get into difficulties than expected at the beginning of the year,” explained Allianz Trade on Tuesday. So far, an increase in corporate insolvencies in Germany by 15 percent had been predicted. According to a survey, many banks wanted to reduce lending even before the turbulence.
“It’s still not a wave of bankruptcies, even if double-digit growth initially appears,” said Milo Bogaerts, CEO of Allianz Trade in Germany, Austria and Switzerland. From his point of view, the problems of banks in the USA and Switzerland are also leaving their mark in Germany: “With the sharp rise in interest rates, companies that are rather poorly financed run the risk of getting into trouble.”
Stock prices under pressure
The rapid rise in interest rates brought down several regional banks in the USA in mid-March. Share prices of banks around the world came under pressure. The major Swiss bank Credit Suisse, which was already in crisis, was rescued by an emergency sale to UBS in mid-March. However, central banks, politicians and bank representatives emphasized the resilience of the banking system in Germany and Europe.
Based on a recent survey, the Munich Ifo Institute came to the conclusion that companies in Germany are finding it easier to get credit again. In December, 30 percent of companies still reported that banks were reluctant to grant loans, but in March it was only 22.7 percent. “The turbulence at some international banks has had no effect on lending in Germany,” concluded the head of the Ifo surveys, Klaus Wohlrabe.
According to the auditing and consulting firm EY, however, bank customers have to be prepared for higher requirements, rising costs and more frequent rejection of loan applications. According to an EY survey published on Tuesday, 67 percent of institutions plan to cut lending. Only 15 percent of the financial institutions surveyed last October want to grant more loans in the next twelve months. A year earlier it was 61 percent. In view of the difficult economic environment with high inflation and rising interest rates, 86 percent of the 120 bank managers surveyed consider loan defaults to be likely.
Capital buffer against crises
“The banks have no choice but to be more restrictive when it comes to lending,” explained EY partner Christoph Roessle. “Because since last year, the German financial regulator has stipulated that credit institutions must form additional capital buffers as a precaution against possible setbacks, for example on the real estate market.” The capital buffer is intended to increase the resilience of credit institutions to crises.
According to official data, the number of company bankruptcies in Germany rose last year for the first time since the global financial crisis of 2009. Extremely high energy prices, high inflation and consumers’ reluctance to buy again forced more entrepreneurs to give up their businesses. Nevertheless, the numbers remained very low in a long-term comparison.
forecast
“Even by the end of 2023, Germany is unlikely to have reached the level before the pandemic,” predicted Allianz Trade expert Bogaerts. “This is only likely to be slightly exceeded again after a further increase in insolvencies of six percent in 2024.”
According to Allianz Trade estimates, global insolvency figures will also rise by a good fifth (21 percent) in the current year from the comparatively low level recently. Here, too, the credit insurer expects that the level of the pre-Corona year 2019 will not be nearly reached again until 2024.
“Germany is still in a good position compared to other European countries,” said Bogaerts. “However, the dynamics of the increase in bankruptcies in the course of normalization have meanwhile adjusted to global events.” This is not a reason for panic, but a reason for caution.
