FCF Interest & Corporate Loan Monitor Q3/2022 published

FCF Fox Corporate Finance GmbH is pleased to publish the new “FCF Interest & Corporate Loan Monitor Q3/2022”.

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 is now in full force and effect – after four decades of declining in-terest rates
    • The average interest rates for corporate loans in Germany ("loan interest rates") across all sec-tors and rating classes have reached a peak of well over 10% in the early 1980s, which was fol-lowed by almost 40 years of declining interest rates (down to approx. 1%) until 2016
    • From 2016 to 2022, i.e. for a period of more than 6 years, interest rates have been fluctuating around the historic low of approx. 1.0% to 1.5% and have hence bottomed-out in the long-term view
    • Since the beginning of 2022, an initially moderate but in the second quarter 2022 increasingly rapid rise in loan interest rates up to 4.0% in Oct. 2022 could be observed, driven by high inflation rates in Germany, the eurozone and the US, as well as significantly higher credit margins of the lending banks (compensating the banks for possible higher default risks)
    • In Oct. / Nov. 2022, the increase in interest rates decelerated somewhat, loan interest rates even slightly decreased back to 3.8%
Current financing environment currently still positive
    • Historically – viewed over a 40-year period – interest rates are currently still at a comparably low level, albeit with an upward trend
    • Banks expect improving lending terms & conditions for Q4/2022
      • however, the development of lending terms & conditions during the last few quarters fell short of the banks' positive expectations
      • Empirical observations and feedback by companies in the market show both increasing refer-ence interest rates as well as credit margins; further terms & conditions (e.g. maturity, cove-nants, securities, etc.) appear to be stable to slightly stricter
    • The banking market is currently still very receptive to new financing with comparatively beneficial terms & conditions – especially for companies with high credit ratings (e.g. In-vestment Grade and good sub-investment grade). However, this window could close rather rapidly over the next few months, particularly for companies with lower ratings in the non-investment grade "BB"-range and below
Macroeconomic data point to further interest rate hike(s)
    • At over 11%, general inflation in Germany is at its highest level since 1951; the core inflation rate (excluding energy and food) is currently at 5.0%, also well above ECB's inflation target of 2%
    • In the eurozone the harmonized consumer price index has reached 10.7%, with core inflation rate now also at 5.0% – both significantly above the ECB inflation target of 2%
    • In all 19 countries of the eurozone, inflation is currently well above ECB's inflation target of 2%
    • In the US, inflation has somewhat declined from its 9% peak to currently just below 8%, following the FED's six interest rate hikes of 375bps to 4.0%
    • Despite its 3rd interest rate hike in 2022 to now 2.0%, ECB will further increase the key inter-est rates. The bond purchase program has already been terminated to a large extent and additional key interest rate hikes have been implicitly announced. The expected additional indebtedness of Germany as well as other EU countries in connection with the COVID19 and the Ukraine crises indicate additional short to medium-term interest rate increases

To access the full report, please click here.

By Kai Frömert and Marco Buonafede Bennardo.