German banks are facing a firestorm of criticism from the government and industry federations that accuse them of threatening small businesses with their tight-fisted credit policies. More than 16,600 small and medium-sized companies in Germany failed in the first half of the year, 14 percent more than in the same period of 2008, the association Creditreform has estimated.
The bankruptcies affected 250,000 jobs and Creditreform has warned that a total of 540,000 jobs could be eliminated by the end of the year. Tight credit policies have been a major factor in the failures, according to most official business administrators polled by ZIS, a research group specialising in troubled enterprises. "Getting credit has become very difficult," administrator Markus Ernestus told AFP.
"Even companies that have a temporary need for cash to fill their orders are getting turned down." The tight money approach prevails despite a steady monetary easing by the European Central Bank, whose benchmark interest rate has been brought down from 4.25 percent to a record low 1.0 percent. "Banks have not lowered their rates, in order to build up their profit margins, and have raised their risk surcharges," said Karl-W. Giersberg, head of the federal small- and medium-sized business association BKM.
The banks are also under pressure from capital reserve requirements imposed by their lending. To reassure investors and to shore up their share price, banks often apply stricter standards than those prescribed by international practice.
As a result, warned Anton Boerner, head of the German exporters' association BGA, "a massive credit crisis" looms between now and the middle of September. German banks reject the criticism, arguing that co-operative banks have made loans of 164 billion euros (231 billion dollars) to companies in the first quarter of the year, an annual increase of 4.7 percent.
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