During the third quarter of 2023, Cyprus saw a notable reduction in loan demand, affecting both businesses and households.
This downturn can be attributed to the restrictive policies within the eurozone and consecutive increases in interest rates.
The Central Bank of Cyprus (CBC) researched bank loans, revealing that loan approval criteria for the third quarter of 2023 remained rigid for businesses and became even more stringent for household loans.
The CBC anticipates further tightening of loan approval criteria in the next quarter, coupled with a continued decrease in loan demand.
The research highlighted that the net demand for loans from households surpassed that of businesses, encompassing various loan categories. Furthermore, the declining trend in housing loans has persisted since the beginning of 2022.
“The decrease in demand for housing loans in the third quarter of 2023 can be attributed to high interest rates, diminished consumer confidence, and a weakened outlook for the housing market,” explained the CBC.
Regarding business loans, the CBC noted that the net demand continued to decrease in the third quarter of 2023, albeit to a lesser extent than expected based on the previous quarter’s findings.
“The reduction in demand for these loans in the third quarter of 2023 is linked to overall interest rates and reduced interest in financing fixed investments. Businesses, faced with the uncertainties in the current economic environment, appear to be postponing their investment plans,” added the CBC.
In terms of loan approval criteria, the CBC highlighted that criteria for businesses remained unchanged for the second consecutive quarter, as all influencing factors had a neutral impact.
Conversely, loan approval criteria for households, including housing and consumer loans, became stricter due to banks perceiving an increased credit risk. Banks recorded margin increases for such loans.
According to the CBC, an increase in margin was observed for higher-risk business loans, while a net decrease in margin for regular new business loans was recorded.
“The heightened competition from other banking institutions continued to temper the tightening of overall terms and conditions for granting new business loans this quarter, while other factors had, on a net basis, a neutral impact,” stated the CBC.