Frontpage News 2013 High corporate len...

High corporate lending in Denmark

17 October 2013

Credit institutions' lending to businesses has fallen in Europe since the crisis. But it is still high in Denmark. 
After an excessive lending growth in the years leading up to the international financial crisis, and today, lending to businesses across Europe has gradually reduced  to be in line with the beginning of 2008, i.e. immediately before the crisis occurred.

"There is no doubt that banks have learned the lessons of the run-up to the crisis, which was characterised by an excessively large supply of cheap bank financing. Although lending has declined, the sector has still been able to meet corporate demand for loans," said the Danish Bankers Association’s Chief Economist, Niels Storm Stenbæk and explains that companies have supplemented with credit through other channels such as corporate bonds, trade credits and other corporate loans.

Figure 1: Evolution in loans to enterprises in selected European countries
Source: ECB.
Note: Loans to non-financial companies calculated for the entire MFI sector, i.e. including banks and mortgage institutions.  
The decline in lending from credit institutions is a general trend across Europe. In that perspective, lending to English companies appears relatively high.
"The Danish business lending is still 52 percent higher than in 2005. Looking at the euro area as a single economy, the total corporate lending is 35 percent above the 2005 level," says Niels Storm Stenbæk. 

Unchanged credit terms

Although lending is still at a high level, credit conditions have been tightened. Figures from the Danish and European central banks show that the primary tightening happened just after September 2008 in Denmark and in Europe.
Figure 2: Evolution of credit standards in Denmark and the euro area  
Source: Denmark’s Central Bank, ECB and the Danish Bankers Association’s calculations.
Note: Figures are based on two different lending surveys conducted respectively by Denmark’s Central Bank and ECB. The studies are not based on identical assumptions and should therefore be interpreted with caution. The figures for ECB are inverted, so that negative values correspond to tightening like in Denmark’s Central Bank’s lending survey.

Loans depend on demand

The banks are starting to capitalise further, and are therefore prepared to lend money. Whether this will lead to growth in corporate lending depends ultimately on business demand. 
"The demand is not necessarily growing at the moment, because companies hold a high savings rate. Initially, they will probably use this when the economy rebounds, and when the investments really get going," says Niels Storm Stenbæk.
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