Decline in business loans continued in late 2023, CBC says

Cyprus saw a decrease in net demand for new business loans in the final quarter of 2023, continuing a downward trend observed since the first quarter of 2022, albeit to a lesser extent than the decline originally expected.

However, according to the Central Bank of Cyprus’ (CBC) survey on bank lending for the fourth quarter of 2023, the net demand for housing loans remained unchanged, halting a declining trend that had been ongoing since the beginning of 2022.

Regarding business loans, the CBC noted on Wednesday that the decrease in demand “is attributed to the generally high level of interest rates”.

Furthermore, there is an increase in net demand for financing fixed investments, which may potentially reflect the expected continuation of growth in domestic private consumption and the increased need for debt restructuring, partially offsetting the overall decrease.

According to the Central Bank, the net decrease in total demand in the fourth quarter of 2023 appears to stem from the reduction in loans from small and medium-sized enterprises, while, concerning large enterprises, net loan demand remained unchanged.

On the mortgage front, the competitive interest rates offset the high rates, resulting in a stabilisation of demand.

The decline in demand attributed to high interest rates and reduced consumer confidence was countered by an increase in demand due to the availability of competitive interest rates for expanding market share in residential loans.

Additionally, the Central Bank reported that the net decrease in consumer and other loans continued during the fourth quarter of 2023, and to a greater extent than expected in the previous quarter.

“According to the survey, 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 said.

Furthermore, loan approval criteria remained unchanged for businesses during the fourth quarter of 2023, while there was a tightening in the two loan categories for households, due to the participating banks’ perception of credit risk.

However, the factor related to the creditworthiness of borrowers did not affect loan approval criteria for households this quarter, unlike the previous quarter, where it contributed to their tightening.