Net demand for corporate loans continued declining in the last quarter of 2023, maintaining a downward trend since the first quarter of 2022, albeit at a slower pace than expected in the previous quarter of the year.

According to the bank lending survey of the Central Bank of Cyprus for Q4 2023, net demand for housing loans remained steady, interrupting a consecutive negative trend since early 2022.

The negative trend in loan demand was mainly driven by the high level of interest rates, the CBC said.

The survey also registers an increase in net demand for corporate loans concerning financing fixed investments, which according to the CBC, may reflect an anticipated continuation in the expansion of domestic consumption and increased need for refinancing of debt restructuring, a demand which has offset the total reduction in corporate lending demand.

According to the CBC, net reduction in total demand for corporate loans in the Q4 2023 was driven by the decline of loans by small and medium-sized corporations, whereas demand by larger firms remained unchanged.

On housing loans, the survey showed that the downward trend in net demand was interrupted in the Q4 2023. Net demand has been following a declining trajectory since the beginning of 2022, the CBC added.

According to the CBC, the negative impact by the rising interest rates, has been offset by increased demand generated by the offering of competitive interest rates by the banks, aiming to increase the share in total lending.

Net demand in consumer lending continued its downward path in the last quarter of 2023, exceeding the expectation of the previous quarter, the CBC said.

The deterioration of consumer confidence, higher interest rates and the further decline in loan demands for durable consumer goods, contributed to the reduction in demand of consumer lending, the CBC said.

Furthermore, the survey for Q4 2023 showed that loan provision criteria remained unchanged for businesses and became stricter for household loans, given the participating banks’ perception over credit risk, the CBC said.

The CBC noted, however, that the factor of borrowers' capacity to repay their loans has not affected lending criteria to households, in contrast to the previous survey where borrower solvency was key to rendering loan provision criteria even more strict.