German Banks Struggle to Find Credit-Worthy Borrowers Despite Excess Capital
Challenges Facing German Banks in Lending Excess Capital
FRANKFURT, May 7 (Reuters) - German banks have vast excess capital but do not lend it to companies and households because there is little demand from good borrowers and the outlook is uncertain due to the Iran war, the Bundesbank's chief supervisor Michael Theurer said on Thursday.
Economic Stagnation and Geopolitical Uncertainty
The German economy has been stuck in the doldrums for years and hopes for a recovery may now be derailed by the Iran conflict and the ensuing surge in fuel costs for the industry-heavy, energy-importing former European powerhouse.
Impact of the Iran Conflict on Economic Recovery
Theurer said German banks would have the means to lend more, sitting on 183 billion euros worth of capital above regulatory requirements, but they can't find credit-worthy borrowers.
"This (capital) could already be used today by credit institutions in Germany to provide loans to the real economy," he told a Bundesbank conference. "That is not happening because there is no demand. Buyers and sellers are not coming together - the conditions are not attractive enough for borrowers, and the opportunities are considered too risky."
Credit Conditions Across the Euro Zone
Banks across the euro zone tightened access to credit in the three months to March and expect to continue doing so this quarter as the war in Iran pushes up energy prices and funding costs, a European Central Bank survey showed last week. Upcoming ECB rate hikes may exacerbate this trend.
Reluctance of Mid-Sized Companies to Invest
Theurer noted that German mid-sized companies, including some that are considered global leaders in their field, were sitting on substantial cash piles rather than investing it.
Factors Influencing Investment Decisions
"One has to ask what the reasons are: uncertainty, perhaps also the question of price conditions, the tax system, and other competitive factors all play a role," Theurer said. "So, given 183 billion euros in excess capital, the issue is not capital requirements."
(Reporting by Francesco CanepaEditing by Peter Graff)
