Credit squeeze hits bigger companies hardest By Richard Milne
Large companies in Europe and the US are seeing the terms of their credit facilities tightened faster and more severely than smaller companies - in contradiction of the received wisdom.
Surveys by the European Central Bank, US Federal Reserve and Germany's Ifo economics institute all show banks tightening their lending criteria most for the largest companies.
Possible reasons put forward for this shift in attitude include smaller companies enjoying a better relationship with their banks, and financial institutions shying away from making large loans and preferring to deal with local groups, rather than multinationals.
"Large companies drove the credit-fuelled expansion but - especially in November - we have seen a big reversal of that," said Chris Williamson, chief economist of data provider Markit.
André Kunkel, head of surveys at Ifo, said: "For the last few years, big companies consistently had it easier but then, in recent months, they saw a huge worsening in credit conditions. Lending terms have dramatically tightened for big companies."
Banks in the eurozone have tightened the credit conditions for 68 per cent of large companies but only 56 per cent of small and medium-sized enterprises (SMEs), according to the European Central Bank's latest survey.
Similarly, the Fed's latest lending survey shows that 95 per cent of banks have tightened conditions for large companies whereas only 90 per cent have done so for smaller ones.
Ifo's figures for December in Germany are even more dramatic, with the number of large companies reporting tightened loan terms more than doubling from August to 48 per cent. By contrast, only 36 per cent of mid-sized companies and 35 per cent of small companies reported stricter terms.
Some analysts suggest the difference in approach is to do with a re- evaluation of risk. "SMEs are seen as less risky if you are the lending risk officer for a bank, as the risk of default for large companies is at an all-time high," said Mr Williamson.
Philip Isherwood, European equity strategist at Dresdner Kleinwort, suggested it may be simply that banks had applied far laxer conditions to larger companies previously and were "now playing catch-up".
Large European companies are also seeing production fall faster than at smaller groups, according to a survey by Markit.