Firms in Germany, where two domestic banks have fallen victim to the global credit crunch, still have ample financing, and many plan to increase investment in the coming year.

Banks have grown more willing to lend to German firms in recent years as industry has shaped up and profited from strong exports. The plight of lenders IKB and SachsenLB, near credit crunch fatalities, has not caused corporate lending to dry up.

Standards for company credit in the third quarter of this year, when the global liquidity crunch struck, were "generally almost unchanged" in Germany, the Bundesbank said last week in a report on its latest quarterly bank lending survey.

Crucially, the Mittelstand -- the small- and medium-sized firms that form the backbone of the economy -- sees no funds shortage. Mittelstand firms, mostly defined as those employing 500 people or fewer, account for 70 percent of the workforce.

The fate of the Mittelstand is a major factor in determining the overall performance of the German economy, Europe's largest.

"The Mittelstand is not feeling anything at the moment in terms of a financing crisis, or even a credit squeeze," Mario Ohoven, president of Mittelstand association BVMW, told Reuters.

"Around a third of Mittelstand firms want to invest more in the next 12 months, only one in 10 wants to cut back," he said.

More than half of Mittelstand firms the BVMW surveyed said their financing situation was 'good' or 'very good'. Four years ago, just 20 percent had the same view, said Ohoven, whose group represents over 150,000 firms with some 4.3 million workers.

Although the global liquidity crunch stemming from the U.S. subprime crisis has tightened money market conditions, German banks have generally been able to carry on functioning and the trouble has not filtered down in a big way to corporate lending.

State-owned lender KfW said on Wednesday it was awarding an "extraordinarily high" amount of credit to firms, though it was hard to predict exactly how liquidity woes stemming from the U.S. subprime mortgage market would impact financing conditions.


Two German banks have come unstuck due to troubles from investing in the U.S. subprime market.

In July, the government brokered a rescue package for lender IKB (IKBG.DE: Quote, Profile, Research) after it landed in trouble investing in the U.S. subprime market. State bank SachsenLB almost went under due to investments in the same sector and was quickly sold to a rival.

However, the cases of IKB and SachsenLB appear isolated.

"If you dive into the detail of what happened with the two institutions, there were very particular circumstances. It wasn't necessarily indicative of a wider problem with German institutions," said Gareth Claase, economist at RBS in London.

The Bundesbank lending survey and a similar report by the European Central Bank on the broader euro zone showed that, although European banks tightened credit in the last three months, Germany escaped the worst of the impact, Claase said.

"It was striking that credit standards in Germany don't seem to have been tightened to anything like the extent they have been in the euro area as a whole," he said.

"They've gone from what seems like a trend of progressive easing to a halt in that process, a slight tightening."

"(There has been) a good two years of progressively looser credit standards. So the take back they expect in the next three months only really gets you back to the beginning of 2007."


Karl Knappe, a director at Germany's BdB private banks' group said lenders were feeling the impact of higher short-term refinancing costs but were still actively looking to lend to domestic companies.

"Obviously banks have a big interest in doing business and when some areas of business -- such as structured products -- are not going well, then there is of course interest in doing business elsewhere," he added.

"And lending to German businesses is an attractive business area, because German firms have improved themselves considerably in recent years in terms of earnings and in terms of restructuring their balance sheets."

Germany's so-called three-pillar banking system -- listed lenders, savings and state banks, and cooperative banks -- helped finance economic expansion in the 1960s and 1970s.

The experience forged close ties between banks and clients and fostered a culture of loyalty, helping the Mittelstand grow.

Last year, Germany enjoyed its strongest economic growth in six years, with foreign trade making a strong contribution.

Growth is widely expected to slow slightly next year as the global economy cools and a stronger euro has some impact on exports, but tighter credit is not a big risk to the outlook.

KfW Chief Executive Ingrid Matthaeus-Maier said the bank had seen no significant impact from the subprime fall-out so far.

"Over the mid-term there may be a re-assessment of the risks by German banks -- possibly with higher risk premiums for weaker borrowers, and tougher credit standards," Matthaeus-Maier said. "But we do not expect a general credit crunch."