German firms complain of tight credit, intrusive banks

7th December 2009, Comments 0 comments

Germany's small- and medium-sized companies are finding it hard to get loans to keep their companies going, sector says.

Berlin -- Small- and medium-sized German companies (SMEs) that complain of intrusive bank practices have gotten a hearing from leaders in Berlin who fear a credit crunch could kill a modest economic recovery.

Heinz Lison is a businessman in the western city of Muelheim and president of a regional federation of metallurgy and electronic SMEs that counts more than 700 members.

Germany's SME sector is the backbone of Europe's biggest economy but many, he says, are finding it hard to get loans to keep their companies going, or have faced very stiff talks with their bankers.

"Banks try more and more to intervene in our operations," Lison told AFP.

"For example, by saying: 'To get a loan you have to fire 15 to 20 workers.'"

Others "demand very strict guarantees, for example at an entrepreneur's risk by saying 'look, you have a holiday home, that could serve as a guarantee.'"

Following the failure of US investment bank Lehman Brothers in September 2008, governments and central banks pulled out all the stops in an effort to ease a credit squeeze that was threatening to paralyse economic activity.

In Germany, the government launched a bank support package worth 480 billion euros (725 billion dollars), while the European Central Bank provided unlimited supplies of cash to commercial banks to unblock interbank money markets.

The ECB also slashed its main interest rate to a record low of 1.0 percent.

But commercial lenders are still taking a close look before giving credit because they are worried about firms not being able to pay the loans back.

The German central bank estimates that commercial lenders still have around 90 billion euros worth of potentially bad loans on their books, about the same amount that has already been written off.

Banks publish annual results early next year that may affect their credit ratings and thus their ability to raise money to then lend out.

The risk is that "the ability to grant new loans will diminish just as an economic rebound will require more financing," warned Andreas Schmitz, head of the German unit of HSBC bank, and of the national banking federation.

Lison is also scandalised by what he is says is the yawning gap between the interest rates the banks pay to borrow money from the ECB and the rates they charge businesses.

"Money has never been cheaper" for the banks, he says.

Hans Michelbach, who represents SMEs within Chancellor Angela Merkel's conservative bloc, says "it smells like a racket" when the ECB charges one percent and "banks lend the money at eight to 10 percent."

A recent study by the Ifo economic research institute found that more than 40 percent of companies say that banks' lending policies are restrictive.

Ifo president Hans-Werner Sinn warned that "poses a risk for the economic recovery" from Germany's worst post-war recession.

Merkel has upped the pressure on banks to step up lending and has named a "credit mediator" to help businesses obtain loans.

Merkel also hosted a summit of bankers, businessmen and labour leaders, and some banks announced they would raise the amount of money on offer.

"Banks are going to change their strategy," Economy Minister Rainer Bruederle said after initially threatening "further regulatory steps" by the state if banks did not heed the government's calls.

"The economy cannot function if there is not enough credit available," Merkel said. "The crisis is not over."

The second biggest German bank, Commerzbank, promptly said it would make another five billion euros available next year to German SMEs.

The state owns 25 percent of Commerzbank following capital injections this year worth a total of 18.2 billion euros.

German savings banks that have state backing also said they were ready to put between five to 10 billion euros into a joint fund for business loans.

And Finance Minister Wolfgang Schaeuble said the head of Germany's biggest bank, Josef Ackermann of Deutsche Bank, had proposed creating yet another fund that would have "state mediation but not participation."

Mathilde Richter/AFP/Expatica

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