Cyprus banks have tightened credit standards in the second quarter of 2022, while net new lending demand subsided, reflecting the geopolitical tensions and the uncertainty in the global economic environment, the Central Bank of Cyprus Bank Lending Survey for the second quarter has found.
The survey’s results are in line with the banks’ expectations as registered in the previous quarter over stricter lending standards.
In Q2 of 2022 credit standards both for businesses and households alike were tightened, compared with the first quarter.
“The bans have highlighted the elevated credit risk perception in relation to the general economic situation, the housing market and the borrowers’ credit score as the main factor to adopt tighter credit standards,” the CBC said.
The tighter strict lending standards for businesses were also attributed to the banks’ reduced risk tolerance, the central bank added.
Although the general terms and conditions for new lending or credit lines to corporations remained unchanged in Q2, some additional conditions such as the banks’ margin (the difference between the loan rate and reference rate) for riskier loans, the collateral requirements, as well as loan value became stricter “reflecting the heightened risk perception and the reduced risk tolerance.”
On the other hand, the general credit standards for loans to households remained unchanged in the second quarter, the CBC said.
Furthermore, banks estimate that credit standards will become stricter in the next quarter for all loan classes “possibly given the developments and heightened uncertainty over the global economic environment.” Tighter lending policy by the banks “also aims to maintain low levels of nonperforming loans.”
Furthermore, in Q2 banks reported reduced net new credit demand associated with reduced demand for fixed investments, mergers and acquisitions, restructurings, and reduced debt restructurings, as well as the general interest rate levels.
“Possibly, corporates opted to defer their investment plans due to the uncertainty of geopolitical developments and their economic impact,” the CBC added.
However, it said that banks have recorded increased demand for corporate loans, which may be related to rising prices and continuing supply chain disruption.