07.09.2022
Cypriot banks tightened lending standards in the second quarter of 2022, while net demand for new loans declined, reflecting geopolitical tensions and uncertainty in the global economic environment, according to the Central Bank of Cyprus Bank Lending Review for the second quarter. According to the CBC, the results of the survey are in line with banks’ expectations recorded in the previous quarter for more stringent lending standards.
High risk perception tightens credit standards
Credit standards for both businesses and households were tightened in the second quarter of 2022 compared to the first quarter of 2022, according to the survey.
“The bans have underscored heightened perceptions of credit risk due to the general economic environment, the home buying market and the credit rating of borrowers as a major driver for the adoption of tighter credit standards,” CBC said in a statement.
The CBC added that stricter corporate lending standards are also attributable to banks’ reduced risk tolerance.
According to CBC, while the general terms of new lending or credit lines for corporations remained unchanged in the second quarter of 2022, some additional terms, such as banks’ margin (the difference between the loan rate and the reference rate) for riskier loans, collateral requirements, and the cost of credit became more stringent, “reflecting increased risk perception and reduced risk tolerance”.
On the other hand, general credit standards for loans to households remained unchanged in the second quarter, according to CBC. In addition, banks estimate that credit standards will become more stringent for all classes of loans in the next quarter, “possibly given developments and heightened uncertainty about the global economic environment.”
The CBC also said that banks’ tighter lending policies are also aimed at keeping non-performing loans low.”
Demand for new loans is declining
In addition, banks reported lower net new demand for loans in the second quarter of 2022, driven by lower demand for fixed investment, mergers and acquisitions, restructurings, lower debt restructurings, and general interest rates.
“Corporations may have decided to postpone their investment plans due to the uncertainty of geopolitical events and their economic impact,” the CBC added.
However, the CBC said banks have registered increased demand for corporate loans for reserves and working capital, which could be due to rising energy and raw material prices and the ongoing supply chain disruption.
For households, the decline in demand for new loans is due to the end of the state scheme for subsidizing interest rates on new housing loans at the end of 2021 and especially strong demand before the date of its end, as well as the escalation of the conflict in Ukraine. and declining consumer confidence.
