Business Loan Demand Declines in Cyprus
In a recent survey conducted by the Central Bank of Cyprus (CBC), a notable decrease in net demand for new business loans was observed in the last quarter of 2023. This marks a continuation of the downward trend that began in early 2022, although the decline was not as sharp as initially anticipated. The CBC’s findings highlight that the dip in demand is largely due to the “generally high level of interest rates”.
Contrastingly, the housing loan sector did not experience a change in net demand, breaking away from the previous downward trajectory. This stabilization is attributed to competitive interest rates that have managed to balance out the impact of higher rates, thus maintaining steady demand for mortgages.
Interestingly, there has been an increase in net demand for financing fixed investments. This uptick could be indicative of a robust domestic private consumption and a growing necessity for debt restructuring, which may provide some compensation for the overall decrease in loan demand.
The CBC’s report further specifies that the net decrease in total loan demand during the fourth quarter was primarily due to a reduction in borrowing by small and medium-sized enterprises (SMEs). In contrast, demand from large enterprises remained static.
High interest rates and diminished consumer confidence have been identified as key factors contributing to the decline in demand. However, these have been partially mitigated by competitive interest rates aimed at capturing a larger share of the residential loan market.
Additionally, there was a more pronounced net decrease in consumer and other loans than expected. The CBC attributes this to deteriorating consumer confidence, higher interest rates, and a continued reduction in expenditure on durable goods.
While loan approval criteria for businesses stayed consistent with previous quarters, there was a noted tightening in criteria for household loans due to banks’ heightened perception of credit risk. Nevertheless, borrower creditworthiness did not influence loan approval criteria for households as it did in the preceding quarter.