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Germany: Banks still dominate funding

Much of the funding of Germany’s economically vital SMEs continues to come from bank loans. Private placements and specialized bonds are of growing importance, but sometimes problematic from a risk point of view.

The financing of small and medium-sized enterprises is of paramount importance in Germany as these firms – the famed Mittelstand – are the bedrock of the economy. They contribute €1.3 trillion to domestic GDP and the larger SMEs – those with a turnover of between €10 million and €1 billion – account for 43% of Germany’s GDP.

Of Germany’s 3.7 million corporates, 99.8% are SMEs or mid-market enterprises (MMEs) and 71% of these companies, 2.17 million firms, have a turnover of less than £250,000. The country also has a higher percentage of larger medium-sized entities than the EU average: 17% compared with 8%.

SMEs in Germany tend to be conservatively run, family-owned businesses that have traditionally financed themselves through the country’s extensive regional banking network – 42.4% of loans to Mittelstand companies are made via savings banks (Sparkassen) and Landesbanken. Large private banks have 24.4% of the market and the cooperative banks 17.9%.


The bonds between Mittelstand firms and their banks are strong and despite growing efforts by institutional investors and non-German banks to prise open this market, bank lending will likely continue to dominate.

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