Filenews 18 January 2024
Businesses borrowed under the same strict criteria in the third quarter of 2023, but for households they became even stricter for both housing loans and consumer and other loans due to banks' perception of increased credit risk in this category of borrowers.
The Bank Lending Survey published yesterday by the Central Bank records, among other things, banks' perception of the new credit environment and, as explained, "as regards loans to households, it was related to the general economic situation and prospects as well as to the solvency of borrowers. In the current uncertain economic environment, banks appear to continue to pursue rational lending policies and pay particular attention to borrower assessments." It is not only the strict criteria but also the cost at which households borrow.
According to the survey, "the overall terms and conditions of new housing loans remained, on a net basis, unchanged, but there was a net increase in banks' margin for those new housing loans with higher risk.
The overall terms and conditions for granting new consumer and other loans to households, on the other hand, have been tightened due to banks' perception of increased risk. In particular, there was an increase in banks' interest margin for both standard new consumer and other loans to households and riskier loans. Banks have a different perception of business lending.
On a net basis, a decrease in the margin for standard new business loans was recorded. "Increased competition from other banking institutions continued this quarter to contain the tightening of overall terms and conditions for granting new business loans, while the remaining factors had, on a net basis, a neutral impact," it said.
According to the survey, the decline in net demand for business loans in the third quarter of 2023 continues to reflect the negative impact of higher borrowing rates, due to tight monetary policy in the euro area, as well as reduced demand for financing fixed investment.
Businesses have also been procrastinating this quarter in promoting long-term investment plans, with their borrowing demand mainly focused on their increased needs for inventory and working capital financing, due to increased operating expenses.
As regards households, the net decline in demand for housing loans is due, according to the survey, to the elevated general level of interest rates, to deteriorating consumer confidence and, to a lesser extent, to less favourable estimated housing market prospects. Similarly, the decline in demand for consumer and other loans is attributed by banks to higher interest rates, lower consumer confidence, lower spending on consumer durables and, for the first time, lower consumer spending financed by loans with mortgages.
For the fourth quarter of 2023, banks expect stricter lending standards and a further decline in loan demand in Cyprus, both for corporate loans and for all categories of loans to households.
In the third quarter of 2023, the proportion of applications (formal and informal) rejected in relation to all applications for loans from enterprises did not change from the previous quarter, both for small and medium-sized enterprises and for large enterprises.
On the contrary, during the quarter under review, there was a decrease in the proportion of rejected applications for new housing loans by households, although the criteria for granting these loans have been continuously tightening since the second quarter of 2020.
