FCF Interest & Corporate Loan Monitor May 2022 published

FCF Fox Corporate Finance GmbH is pleased to publish the new “FCF Interest & Corporate Loan Monitor May 2022”.

FCF regularly conducts comprehensive research regarding the German corporate loan and interest market, based on publically available information. The results are updated and published quarterly in the FCF Interest & Corporate Loan Monitor

The FCF Interest and Corporate Loan Monitor provides valuable information regarding the prevailing macro-economic environment as well as the corporates loan and bank markets and covers the following topics:

  • macro-economic environment
  • currently prevailing interest rate environment
  • current developments of credit margins
  • behavior of the bank within the corporate loan market

The most important insights of the acurrent issue:

  • The interest rate-turnaround has now occurred – after four decades of declining interest rates
    • The average interest rates for corporate loans in Germany ("loan interest rates") across all sectors and rating classes had reached a peak of well over 10% in the early 1980s, which was followed by almost 40 years of declining interest rates (down to an all-time low of approx. 1%) until 2016
    • Since mid-2016, i.e. for a total of almost 7 years, interest rates have been fluctuating around the low of approx. 1.5% and have hence bottomed-out in the long-term view
    • Since mid / end of 2021, an initially moderate but in the recent weeks increasingly rapid increase in loan interest rates to 2.5%+ could be observed, driven, inert alia, by the currently high inflation rates in Germany, in the Euro-area, as well as in the US – but certainly also due to windfall gains at the lending banks
    • Recent interest rates rises have already been dramatic, with increases of more than 250% in the last eight weeks. Therefore, when signing new loan agreements, companies will already have to pay interest rates higher than during than last eight years. An even further rise in interest rates is to be expected
  • The financing environment is currently still positive
    • Historically – viewed over a 40-year period – interest rates are currently still at a very low level, albeit with a (recently strong) upward trend
    • The banks even expect improving lending terms & conditions for Q2/22 – however, the development of lending terms & conditions during the last few quarters have already dropped short of the banks' positive expectations in most cases
    • During the past twelve months, especially the Landesbanken and Sparkassen have once again expanded their lending volumes, while the other banking groups have already started to become more cautious; mortgage banks have already seen a decline in new lending
    • The banking market is currently still very receptive to new financing with comparatively beneficial terms & conditions – especially for companies with high credit ratings. However, this window could close rather fast over the next few months, particularly for companies with lower ratings (in the non-investment grade "BB"-range and below)
  • The macroeconomic framework data point to further interest rate hike(s).
    • At over 7%, inflation in Germany is as high as it was in the early 1980s, and the core inflation rate (excluding energy and food) is currently 3.8%, well above the ECB's inflation target
    • In the euro zone, which is more important for the European Central Bank, the consumer price index is also at 7.5% and the core inflation rate is now at 6.4%, which is significantly higher than in Germany and also well above the 2% ECB inflation target
    • In all 19 countries of the eurozone, inflation is currently well above the 2% ECB target
    • In the USA, inflation has now risen to over 8%, the FED had announced interest rate hikes at the end of January 2022 and has meanwhile already raised the key interest rate twice by a total of 0.75%
    • The ECB will not be able to avoid an interest rate hike any longer in the short term – the bond purchase program has already been scaled back and interest rate hikes have been implicitly announced. The expected new debt of the Federal Republic (and other EU countries) in connection with the Corona and Ukraine crises also speaks for short to medium-term interest rate increases

To access the full report, please click here.

By Kai Frömert and Marco Buonafede Bennardo.