The lending business has been booming since the outbreak of the corona crisis. Recently, non-German institutes have benefited less from this than in the first half of the year.
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(Photo: dpa)
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Frankfurt The foreign banks in Germany have been on the advance for a long time: in the lending business, they looted market shares from domestic institutions – and the international institutions also got better grades from bond investors. Since the outbreak of the corona crisis, this lead has at least decreased in both fields.
One example is the development of lending. For months, the lending business of the foreign banks in Germany grew at an above-average rate, even in the first few months of this year. However, that has changed since May. According to data from the Bundesbank, the loan portfolio of foreign institutions to domestic borrowers shrank by 1.6 percent by August.
By contrast, the loan portfolio of all institutes remained stable over the same period with a minimal increase of 0.2 percent. Cooperative banks and savings banks in particular expanded their loan portfolio by more than one percent. Only the Landesbanken recorded an even greater minus than foreign banks.
Significant increase in risk premiums
In the spring there was a debate about whether the foreign banks would withdraw from Germany in the corona crisis. However, evaluations by the auditing and consulting company PwC had shown that the foreign institutions had increased their credit exposure more significantly than any other German banking group.
It is not possible at the moment to say precisely why this trend has now been interrupted. Do international institutes concentrate their efforts on their home markets in times of crisis? Have you become more risk averse? Is it because foreign institutions often do not have the currently popular loans from the state development bank KfW in their programs?
The focus of many foreign banks on large companies seems to play a role. After the capital markets, which are an alternative source of finance for large corporations, were initially frozen during the corona crisis, the capital market picked up again significantly from May.
“Most of the large existing customers obtained loans from March to May in the first Corona wave, and the large French banks in particular also used this situation to win new customers in Germany,” says Andreas Prechtel, the managing director of the Association of Foreign banks. In May there were then some returns on bridging financing for bond and share issues, said Prechtel.
Foreign banks: no withdrawal
Prechtel emphasizes that, despite the slight downward trend since May, the loan portfolio is still “at a much higher level than at the beginning of the year”. In any case, the data are not an indication of a possible withdrawal of the foreign banks. “The foreign banks have become a very important pillar of the German economy in the area of lending and will continue to expand their market position,” he says.
Arno Fuchs, head of the financing specialist FCF Fox Corporate Finance, sees it a little differently. “In my impression, foreign institutions in Germany are no longer quite as aggressive when it comes to lending as they were before the beginning of the corona crisis,” says the head of the company specializing in medium-sized companies. The conditions of the foreign institutes were previously often more favorable than those of German institutes. “Now they have adjusted.”
The development in loan terms correlates with a similar trend in the credit derivatives market. “For a long time, the risk premiums for credit derivatives from foreign banks were much lower than those of German institutions. This gap has decreased significantly since the outbreak of the corona crisis, “says Fuchs.
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Since the beginning of the year, the risk premiums of large German institutions have risen by an average of 26 percent to 0.72 percentage points. The average of the risk premiums of large foreign banks active in Germany rose by 41 percent to 0.69 percentage points. In the peak of the Corona, the spreads of foreign banks were at times even higher than those of German institutions, emphasizes Fuchs.
This emerges from the FCF bank monitor for the third quarter, which is available to the Handelsblatt. In it, the financing specialist analyzed the credit default swaps (CDS), i.e. the risk premiums, of all financial institutions that play a relevant role in the financing of medium-sized companies.
With so-called credit default swaps (CDS), investors protect themselves against the failure of a company’s bonds. The risk premiums on the CDS market are therefore considered a rough indicator of how expensive it is for a bank to borrow unsecured money from investors.
Risk premiums: German institutes in the middle
Theoretically, the CDS risk premiums thus influence the refinancing costs and thus also the lending capabilities of the institutions. In practice, however, banks can also finance themselves cheaply through customer deposits or loans from the European Central Bank (ECB), regardless of the level of their risk premiums.
A spokesman for the German bank. In addition to the refinancing costs, other factors such as the customer relationship as a whole or the customer’s rating would also have an influence on the credit terms and conditions.
“Nevertheless, one can observe in practice that banks with higher risk premiums price the conditions for their loans more appropriately than other institutions,” says FCF specialist Fuchs. A low CDS spread seems to at least provide some tailwind.
These are not good omen for the coming months, because in the third quarter, especially in September, banks’ risk premiums rose again significantly, according to the Bankenmonitor.
Even if German banks got off better on average, institutions like the Dutch one cavort in the top positions with the lowest risk premiums ING or the French BNP Paribas still only non-German institutes.
Only in ranks five to ten follow three German financial institutions: Helaba, BayernLB and LBBW. The major German banks Commerzbank and Deutsche Bank follow in twelfth and 15th place.
More: Liquidity as a scarce commodity: How companies manage to get fresh money in a crisis
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