German banks are holding vast excess capital but are not lending it to companies and households, Bundesbank’s chief supervisor Michael Theurer stated on Thursday. Addressing a Bundesbank conference, Mr Theurer revealed German financial institutions possess 183 billion euros in capital above regulatory requirements. This substantial liquidity remains unutilised due to scant demand from creditworthy borrowers and a clouded economic outlook, exacerbated by geopolitical uncertainties stemming from the Iran conflict.
The German economy has been mired in a prolonged slowdown for years, with recovery hopes now facing further derailment. Theurer highlighted that the Iran conflict and subsequent surge in fuel costs pose a significant threat to the nation’s industry-heavy, energy-importing sectors. He noted that while banks possess the means to extend more credit, they are unable to find suitable recipients. “This could already be used today… That is not happening because there is no demand. Buyers and sellers are not coming together,” Theurer explained, citing unattractive conditions and perceived high risks for borrowers.
This sentiment aligns with a recent European Central Bank survey, which indicated that eurozone banks tightened access to credit in the three months to March, expecting this trend to continue. Escalating energy prices and increased funding costs, partly linked to the Iran situation, are key drivers, with upcoming ECB rate hikes potentially intensifying the challenge. Further compounding the issue, Mr Theurer observed that many German mid-sized companies, including global leaders, are themselves accumulating significant cash reserves rather than investing. He attributed this reluctance to uncertainty, price conditions, the tax system, and other competitive factors, concluding that the core problem lies not with capital requirements, but with a pervasive lack of compelling investment and lending opportunities.
