Businesses adopted the same strict criteria in the third quarter of 2023, but for households, both housing and consumer loans became even more stringent.
This was due to the banks’ perception of increased credit risk in this specific category of borrowers.
The research on bank lending published yesterday by the Central Bank records, among other things, the banks’ perspective on the new credit environment.
It is explained that concerning loans to households, it is related to the general economic situation and prospects, as well as the borrowers’ creditworthiness.
In the current uncertain economic environment, banks seem to continue implementing rational lending policies and paying particular attention to borrower assessments.
It is not only the strict criteria but also the cost at which households borrow that has increased.
According to the research, “the overall terms and conditions for granting new housing loans remained, on a net basis, unchanged, but a clear increase was recorded in the margin of banks 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, became stricter due to the banks’ perception of increased risk.
Specifically, an increase in the interest rate margin of banks was recorded for both regular new consumer and other loans to households, as well as higher-risk loans.” Banks hold a different view on the lending to businesses.
On a net basis, there was a reduction in the margin for regular new business loans.
“Increased competition from other banking institutions continued to restrain 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,” it is noted.
According to the research, the decrease in the net demand for business loans in the third quarter of 2023 continues to reflect the negative impact of higher interest rates due to restrictive monetary policy in the eurozone, as well as reduced demand for financing fixed investments.
Businesses are also showing reluctance this quarter in promoting long-term investment plans, with their loan demand mainly focused on increased needs for working capital and operating capital, due to higher operating expenses.
Regarding households, the net decrease in demand for housing loans is attributed, according to the research, to increased overall interest rates, worsening consumer confidence, and, to a lesser extent, less favorable estimated prospects for the housing market.
Similarly, the decrease in demand for consumer and other loans is attributed by banks to higher interest rates, reduced consumer confidence, reduced spending on durable consumer goods, and, for the first time, a reduction in consumer spending financed by loans with property collateral.
For the fourth quarter of 2023, banks expect stricter loan approval criteria and further reduction in loan demand in Cyprus, both for business loans and for all categories of household loans.
During the third quarter of 2023, the ratio of rejected applications (official and unofficial) for loans by businesses showed no change from the previous quarter, both for small and medium-sized enterprises and for large enterprises.
On the contrary, during the reporting quarter, there was a decrease in the ratio of rejected applications for new housing loans from households, although the lending criteria for these loans have been continuously tightening since the second quarter of 2020.
