High interest rates continue to squeeze loan demand

bbb xrimata11 loans, interest rates, BANK

Loan demand fell further in the first quarter of 2024, with banks attributing the decline to high interest rates, while business lending criteria tightened in the first quarter of 2024 after three consecutive quarters in which they had remained unchanged. The criteria for granting loans to households remained stable.

According to the Bank Lending survey, by the Central Bank of Cyprus (CBC), the criteria for granting loans to businesses became stricter in the first quarter of 2024, mainly due to the reduced risk tolerance of Banks, as well as their perception of increased risk in relation to the general economic situation and prospects of the economy.

In contrast, lending criteria to households, both for housing loans and for consumer and other loans, remained unchanged in the first quarter of 2024, compared to the previous quarter.

"All the factors that affect the criteria for granting loans to households had a neutral impact during the reporting quarter," the CBC noted.

On the loan supply side, business lending criteria tightened in the first quarter of 2024 after three consecutive quarters in which they had remained unchanged.

According to the Survey, the tightening was mainly due to the Banks' reduced risk tolerance as well as their perception of increased risk in relation to the general economic situation and the prospects of the economy. In contrast, the criteria for granting loans to households, both for housing loans and for consumer and other loans, remained unchanged in the first quarter of 2024, compared to the previous quarter.

Relative to loan demand in the first quarter of 2024, net demand for loans from businesses and, to a greater extent, from households, both for housing and consumer and other loans, recorded a further decline.

"The net reduction in business loan demand in the first quarter of 2024 is attributed by banks to the increased general level of interest rates," it states.

However, it is noted that the increased financing needs for fixed investments, possibly reflecting the positive growth prospects of the Cypriot economy, as well as the refinancing/restructuring of debt contributed positively to loan demand.

As for households, the net decline in demand for housing loans is attributed by the Banks to increased interest rates, lower consumer confidence and a weakening housing market outlook.

Finally, it is reported that according to Banks' expectations for the second quarter of 2024, the criteria for granting loans to both businesses and households are expected to remain unchanged compared to the previous quarter. At the same time, a decrease in the net demand for consumer and other loans from households is expected, while both the net demand for loans from businesses and housing loans from households is expected to remain stable.

Source: KYPE