German banks were ahead of anybody else in implementing BASEL II.  It was a welcome excuse to eliminate under-performing loans, especially SMEs and to have the benefit of risk adjusted pricing.  Consequently the German banking market is one of the first to offer a perspective on the consequences BASEL II.  According to a study of 4,500 companies by Siemens Financial Services (the financial services arm of Siemens Corporation), profound changes are underway in the German SME sector in terms of a shift from bank borrowing to alternative financing.  SMEs have cut back significantly on their reliance of bank borrowing, traditionally the main source for SME financing:

  • German SME interest payments to banks have dropped by two thirds within two years.  Measured against pretax profits, interest payments were below 25% last year, compared to 64% in 2003
  • SMEs are relying more on alternative financing methods such as leasing and factoring

 Source:  FT April 3, 2006 / Siemens Financial Services

BIIA Newsletter May – 2006 Issue