Corporate loan demand falls in Cyprus in Q3

Net demand for business loans in Cyprus decreased in the third quarter of 2022, and banks anticipate a similar decline in the net demand for business and household loans in all loan categories in the fourth quarter of 2022 compared to the third.

According to a Central Bank of Cyprus report, net business loan demand in Cyprus fell further in the third quarter of 2022, contrary to expectations in the previous quarter’s survey for unchanged demand. Despite increased demand for loans for inventories and working capital, the net decrease in business loan demand in Q3 2022 may reflect increased financing needs due to increases in energy and raw material prices, as well as supply chain disruptions.

According to the survey, the net decline in business loan demand in July-September was driven by lower demand for fixed investment financing, current interest rate levels, lower demand for financing mergers and acquisitions and business restructuring, and lower demand for debt restructuring (part of “other financing needs”). Increasing uncertainty about the economy’s future prospects, combined with rising interest rates, appears to be causing firms to postpone investment decisions. SMEs and large firms drove the decline in net loan demand in the third quarter of 2022.

The fourth quarter is expected to see a decrease in net loan demand from businesses and households across all loan categories, according to the expectations of the banks surveyed.

Banks also forecast that loan requirements in Cyprus will tighten in Q4 for all types of consumer loans and, to a greater extent, business loans.

The third quarter saw tighter lending standards than the second, for both loans to businesses and all types of loans to households, according to the survey. 

The adoption of stricter lending standards was motivated by banks’ reduced risk appetite for business loans as well as their perception of increased risk. The general economic situation and outlook, borrower creditworthiness, the state of the housing market, and the collateral needed for business loans were all factors that banks perceived as being riskier. 

Banks anticipate even stricter lending standards in Cyprus for all loan types in Q4, possibly as a result of an economic slowdown.