Lending criteria remain unchanged in 2nd quarter, demand for loans by households increases

Lending criteria to both businesses and households remained unchanged in the second quarter of 2021, but it is expected that they will become stricter in the third quarter of the year, according to the results of the Bank Lending Survey (BLS) for July 2021, published Tuesday by the Central Bank of Cyprus (CBC).

This development, said the CBC, “followed the tightening observed in 2020 in all loan types, as well as during the first quarter of 2021 in loans to households, mainly due to the pandemic and in particular the banks’ increased risk perception.”

Net demand for loans by firms remained unchanged in the second quarter of 2021, while net demand for loans from households increased.

In addition, the ratio of rejected applications to total applications changed slightly compared with the previous quarter for all loan types, a development which according to the CBC, is consistent with “the unchanged lending criteria during the second quarter of 2021 and the perception that credit risks are generally stable.”

The survey showed that in the second quarter of 2021 “there was no further change in risk perception, possibly reflecting the improved conditions regarding the pandemic.”

During the second quarter of 2021, according to the banks participating in the survey, lending criteria to businesses in Cyprus remained unchanged compared with the previous quarter, in line with the expectations expressed in the April 2021 survey.

According to the BLS, lending criteria “remained at the stricter levels reached at the end of 2020 despite increased costs associated with the banks` capital position in the second quarter of 2021.”

In addition, housing loans criteria remained unchanged in the second quarter of 2021, despite estimates in the survey of the previous quarter for further tightening.

The CBC said that “housing loans criteria remained unchanged after four quarters of continuous tightening due to increased risk perception of banks and their reduced risk tolerance due to the coronavirus pandemic.”

Criteria for loans for consumption and other types of loans to households also remained unchanged during the second quarter of 2021 for the first time since the outset of the pandemic.

Banks’ expectations

According to the banks` expectations for the third quarter of 2021, lending criteria to businesses and households for all types of loans are expected to become stricter compared with the previous quarter.

Demand for loans

The survey revealed that net demand for loans by firms, during the second quarter of 2021, remained unchanged.

Net demand for loans from households increased compared with the previous quarter for all types of loans. According to the CBC this is attributed to the general level of interest rates for loans to households, as well as to the subsidy of interest rate of new housing loans by the government.

The survey showed that Banks expect that net demand for loans, both from businesses and households for all types of loans would increase in the third quarter.