Rising daily Covid-19 infections in Cyprus and heightened uncertainty about the impact on the real economy led Cypriot banks to tighten lending criteria for business loans in the fourth quarter of 2021, a survey on bank loans published by the Central Bank of Issues in Cyprus (CBC).
The CBC said lending criteria for household loans remained unchanged, while expectations from banks participating in the survey suggest lending criteria will remain unchanged for the first quarter of 2022.
According to the CBC, the factors that led to the tightening of lending criteria for Cypriot companies, whether large companies or small and medium-sized enterprises, were banks’ perception of risk compared to the outlook of some sectors of the economy, their general economic situation and reduced risk tolerance.
“The change (in lending criteria) may be due to the increase in Covid-19 cases due to the Omicron variant and its rapid spread among the population, increasing uncertainty about its impact on the real economy” , the CBC added, noting that this was contrary to the expectations of participating banks in the previous quarter.
The survey recorded a sharp increase in demand for business loans in the fourth quarter of 2021, demand associated with the building of reserves, working capital and fixed investments which demand on the rise for the second consecutive quarter.
The CBC further stated that the increase in reserve and working capital funding requirements could be associated with the increase in the prices of raw materials and other products due to the disruption of the supply chain in international trade and the significant increase in transfer costs.
According to the survey, the granting criteria both for the purchase of a home and for consumer loans have remained unchanged.
Demand for housing loans recorded a significant increase in the fourth quarter of 2021, exceeding banks’ expectations. The surge in demand is mainly attributed to the two government home loan programs that ended in December 2021, the CBC added.
In addition, demand for consumer and other credits remained unchanged for a second consecutive quarter in the fourth quarter contrary to the expectations of the participating banks during the previous quarter.