CBC: Net demand for business loans rises in Cyprus for the first time since 2021

Net demand for business loans in Cyprus increased for the first time since 2021, according to the Bank Lending Survey published by the Central Bank of Cyprus (CBC).

At the same time, lending criteria for businesses and households remained unchanged during the first quarter of 2025. Specifically, criteria for business loans stayed at strict levels for a third consecutive quarter, despite earlier expectations of an easing.

Similarly, criteria for housing loans to households remained steady for a fifth consecutive quarter, despite downward pressures from increased competition. The criteria for consumer and other household loans also remained stable, despite predictions of loosening.

According to the survey, all factors influencing lending standards had a neutral impact across business, housing, and consumer loans. Banks anticipate that these criteria will remain unchanged in the second quarter of 2025 as well.

In contrast, there was further easing in the overall terms and conditions for new loans. For business loans, banks reported a reduction in interest rates and in the margin for standard loans, although no further margin reduction was observed for higher-risk loans. This development reflects banks’ perception of reduced risk and increased competitive pressures.

A similar trend of easing was observed in housing loans to households, marking the second consecutive quarter of looser conditions, with lower interest rates and margins for standard loans. This was again linked to banks’ perception of lower risk and competitive dynamics.

Consumer and other household loans also experienced further easing in terms and conditions for the second straight quarter. In the first quarter of 2025, interest rates decreased further, though there was no additional reduction in profit margins for either standard or higher-risk loans. This was attributed by banks to a reduced perception of credit risk.

Notably, net demand for business loans increased, marking the first rise since the fourth quarter of 2021. This increase, which had been anticipated by banks, was driven by the general level of interest rates and the need for fixed investment financing. Demand rose among both small and medium-sized enterprises and large corporations, with the latter showing stronger growth.

In contrast, demand for housing loans from households remained unchanged, as the positive impact of lower interest rates was offset by increased borrowing from other banking institutions.

Demand for consumer and other loans from households continued to decline for a second consecutive quarter, contrary to banks’ earlier expectations of an increase. This decline was attributed to lower spending on durable goods and a preference for alternative forms of financing, such as loans from other banks.

Regarding loan rejections, the rejection rate for business loan applications remained stable, while the rate for households increased for a second consecutive quarter, affecting both housing and consumer loans.

For the second quarter of 2025, banks forecast a further increase in demand for business loans and housing loans from households, while demand for consumer and other loans is expected to remain unchanged.

The Bank Lending Survey was conducted between 10 and 25 March 2025 and reflects the views of participating banks, without representing the positions of the Central Bank of Cyprus.

(Source: CNA)