Central bank of Cyprus

Banks in Cyprus to tighten lending rules

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Cypriot banks expect stricter lending criteria for households but not for Covid-affected businesses while preparing for an increase in demand in all categories of loans for the second quarter of 2021, the Central Bank of Cyprus (CBC) said in its Bank Lending Survey (BLS) for the first quarter of 2021 published on Tuesday (August 24).

The CBC said that the strengthening of coronavirus-related measures led to a decrease in demand for borrowing from both households (reduced consumption and increased deposits due to uncertainty about their future financial situation) and by businesses (reduction in demand for fixed investments due to uncertainty about future economic prospects), overturning estimates for the first quarter of 2021, where during the CBC’s January 2021 survey, banks expected an increase in the demand for loans in all categories.

Despite the expectations to further impose tougher lending criteria for companies, this did not happen, as it appears that banks’ risk perception and risk tolerance improved in the first quarter of 2021 compared to the previous one.

The CBC said however that based on the lenders’ expectations for the second quarter of 2021, the criteria for lending to businesses were expected to remain unchanged, while for households for all loan categories they were expected to become even tighter compared to the previous quarter.

Separately, the CBC published data showing the evolution of aggregate non-performing loans (NPL) for all credit institutions. NPLs in the banking system stood at €5.134 bln in May 2021, down by €7 mln from € 5.141 bln in April.

Last year, NPLs stood at €5.111 bln (17.7% of total loans), down from €8.972 bln (27.9%) in 2019. NPLs in the Mediterranean island declined by €23.2 bln between December 2014 and December 2020.

“However, by all accounts, the NPL ratio in Cyprus remains high and the effects of the pandemic are still a source of uncertainty” Elizabeth McCaul, Member of the Supervisory Board of the ECB, said in an interview with Cyprus News Agency, conducted by Gregory Savva and published on 16 June 2021.

The Central Bank of Cyprus (CBC) was established in 1963, shortly after Cyprus gained its independence. Today the CBC is governed by the Central Bank of Cyprus Law, 2002 as amended.