COVID spike tightened corporate lending in Q4

The rise in daily Covid-19 infections and heightened uncertainty over the impact on the real economy led Cyprus banks to tighten the lending criteria for corporate loans in the fourth quarter of 2021. A Central Bank of Cyprus (CBC) lending survey shows that lending criteria for household loans remained unchanged; expectations of the banks suggest that conditions will remain unchanged for the first quarter of 2022.

Factors that led to the tightened lending criteria for Cypriot businesses, both large corporates and smaller firms, were the banks’ perception of risk compared with the prospects of certain sectors of the economy, their general economic status and the reduced risk tolerance.

“The change (in lending criteria) may be due to the rise in Covid-19 cases due to the Omicron variant and its rapid spread among the population, increasing uncertainty for its impact on the real economy,” the survey said. This change was contrary to the participating banks’ expectations in the previous quarter.

The survey recorded a net increase in demand for corporate loans in Q4 2021, a demand associated with building reserves, working capital and fixed investments, with demand upward for the second consecutive quarter. It said that the rise in financing needs for reserves and working capital might be associated with the increase in commodity prices and other products due to supply chain disruption in international trade and the significant rise in transfer costs.

According to the survey, the lending criteria for house purchases and consumer loans remained unchanged. Demand for housing loans recorded a significant increase in Q4 2021, exceeding the banks’ expectations.

The rise in demand is mainly attributed to two government schemes for housing loans which ended in December 2021.