|
Eichel: Struggling to engage high |
If the role of a banking system is to finance corporates through the bad times as well as the good, the German system is failing. At least that’s what the recent decision by the Federal government to establish a Mittelstand bank strongly suggests.
“Small and medium-size enterprises are Germany’s job motor,” said finance minister Hans Eichel in an after-dinner speech in Frankfurt at the inaugural monetary stability foundation conference in December. “We must get it into high gear.”
But surveys from such institutions as the IFO and Kreditanstalt für Wiederaufbau (KfW) suggest that the Mittelstand – 98% of German corporates – is fighting to survive. KfW found that one firm in three is having trouble renewing credit lines. And the smaller the company, the harder they’re finding it.
Another public bank with a social mandate So the government has taken matters into its own hands and decided to merge the SME financing activities of German development banks KfW and Deutsche Ausgleichsbank (DtA). From this month they will form a single Mittelstand bank dedicated to making it quicker and easier for small private companies to get access to funding.
It will also have a social purpose. From November, KfW has been responsible for administering part of the Hartz proposals to improve labour markets in Germany. For each unemployed person that a SME company takes on, it can apply for two separate grants of e50,000, one via its bank and the other from KfW directly.
There’s been immense interest in this scheme according to KfW, and so far credits have been granted to 46 different SMEs, which have taken on between one and 200 unemployed people each.
Hans Reich, chairman of KfW, insists that this money does not amount to state hand-outs. “We will refuse applications from companies below a certain level. That is, those that cannot prove that they have a future or that have a rating below BB according to our internal methodology.” And he insists: “We are not competing with the banks, we are working in partnership with them.”
He points out that the private banks tend to be more concerned about servicing the biggest Mittelstand companies, such as Miele and Bosch, than firms with a turnover of less than e500 million.
But setting up a new public vehicle to finance SMEs when Germany is so notoriously overbanked seems a pretty clear indictment of the current system. Another public institution providing cheap funding to German corporates – unlike the Landesbanken, KfW’s quasi-government status and AAA rating is assured – can’t be good news for the private banks.
