Cyprus Sees Decline in Business Loan Demand, Housing Loans Stable: Central Bank Report

In the final quarter of 2023, Cyprus witnessed a decline in the net demand for new business loans, continuing a downward trend observed since the first quarter of 2022, albeit not as severe as initially anticipated. However, the Central Bank of Cyprus' (CBC) survey on bank lending for the fourth quarter of 2023 revealed that the net demand for housing loans remained unchanged, marking a halt to the declining trend seen since the beginning of 2022.

The CBC attributed the decrease in demand for business loans to the generally high level of interest rates prevailing in the market. Conversely, there was an increase in net demand for financing fixed investments, potentially reflecting the expected growth in domestic private consumption and the increased need for debt restructuring, which partially offset the overall decrease.

According to the Central Bank, the reduction in total demand in the fourth quarter of 2023 was primarily driven by decreased loans from small and medium-sized enterprises, while net loan demand for large enterprises remained unchanged.

Competitive interest rates in the mortgage sector offset the overall high rates, leading to a stabilization of demand. The decline in demand due to high interest rates and reduced consumer confidence was countered by an increase in demand fueled by competitive interest rates aiming to expand market share in residential loans.

Furthermore, the CBC reported a continued net decrease in consumer and other loans during the fourth quarter of 2023, surpassing expectations from the previous quarter. The CBC attributed this decline to worsening consumer confidence, higher interest rates, and reduced spending on durable goods.

Loan approval criteria remained unchanged for businesses during the fourth quarter of 2023, while there was a tightening in loan categories for households due to participating banks' perception of credit risk. However, unlike the previous quarter, the creditworthiness of borrowers did not influence loan approval criteria for households in this quarter.

"The survey indicates that during this quarter, the worsening consumer confidence, higher interest rates, and further reduction in spending on durable goods contributed to the decrease in demand for this loan category," the CBC stated.

By fLEXI tEAM