High interest rates continue to put pressure on loan demand

Loan demand continued to decline in the first quarter of 2024, with banks attributing the decline to high interest rates, while the terms and conditions for granting loans to businesses became tighter in the first quarter of 2024 after three consecutive quarters in which they had remained unchanged. The criteria for lending to households remained stable.

According to the Central Bank's Bank Lending Survey for the first quarter of 2024 the credit standards as well as the terms and conditions for loans to enterprises tightened in the first quarter of 2024, mainly due to Banks' reduced risk tolerance, as well as their perception of increased risk in relation to the general economic situation and the outlook for the economy.

On the other hand, the credit standards for loans to households remained unchanged in the first quarter of 2024, for mortgage loans, consumer and other loans.

The terms and conditions for housing loans also remained unchanged while they tightened for consumer credit and other lending to households.

The net demand for business loans decreased, in the first quarter of 2024, and at the same time, the net demand for housing loans as well as for consumer credit and other lending also decreased.

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

As far as households are concerned, the net decline in demand for mortgage loans is attributed by banks to higher interest rates, lower consumer confidence and a weakening housing market outlook.

Finally, according to banks' expectations for the second quarter of 2024, the lending criteria for both businesses and households are expected to remain unchanged compared to the previous quarter. At the same time, a decline in net demand for consumer and other loans from households is expected, while both net demand for business loans and mortgage loans from households are expected to remain stable.

(Source: CNA)