Demand for loans in Cyprus continued its downward trajectory in the third quarter of 2023 affected by the ECB’s restrictive monetary policy and recurring interest rate hikes.

Furthermore, according to the Central Bank of Cyprus (CBC) Bank Lending Survey, the banks’ lending standards remained unchanged to the current strict levels for corporations but tightened even more for households, with participating bans expecting a further decline in demand for new lending and even more tighter lending standards in the fourth quarter of 2023.

The survey showed that in Q3 the decline in net lending demand from households was even greater than the respective decline in demand from enterprises, and affected all household loans, with demand for housing loans being in negative territory since the first quarter of 2022.

«The decline in demand for housing loans in the third quarter was a result of high interest rates and reduced consumer confidence as well as the weak prospects in the housing market,” the CBC said.

With regard to corporate loans, the CBC noted that net demand continued declining in the third quarter, albeit to a lower level than the banks anticipated in the previous quarter.

“The reduction in demand of these loans continues to be driven by the general interest rates level and reduced demand for fixed investments financing. With uncertainty marking the current economic environment and prospects, enterprises seem to continue deferring their investment plans,” the CBC added.

Furthermore, the CBC said that in the third quarter of 2023 lending standards for corporate loans remained unchanged mainly due to competition among bans for corporate loans, whereas standards for household loans tightened even further due to the participating banks’ perception over credit risk.