Spike in Covid-19 cases tightened lending criteria for corporate loans in Q4 2021

The rise in daily Covid-19 infections in Cyprus and the heightened uncertainty over the impact on the real economy led the Cypriot banks to tighten the lending criteria for corporate loans in the fourth quarter of 2021, a Bank Lending Survey issued by the Central Bank of Cyprus (CBC) shows.

The CBC said that lending criteria for household loans remained unchanged, while the expectations of the banks participating in the survey suggest that lending criteria will remain unchanged for the first quarter of 2022.

According to the CBC factors that led to the tightened lending criteria for the Cypriot businesses, both large corporates and small and medium sized corporations, 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 CBC added, noting that this change was contrary to the expectations the participating banks had in the previous quarter.
 
The survey recorded a net increase in demand for corporate loans in the fourth quarter of 2021, a demand associated with building reserves, working capital and fixed investments which demand upwards for the second consecutive quarter.
 
The CBC furthermore said that the rise in financing needs for reserves and working capital may 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 both for house purchase and consumer loans remained unchanged.
 
Demand for housing loans recorded a significant increase in the fourth quarter of 2021, exceeding the banks’ expectation. The rise in demand is mainly attributed to the two government schemes for housing loans which ended in December 2021, the CBC added.
 
Moreover, demand for consumer and other loans remained unchanged for a second consecutive quarter in Q4 contrary to the expectations of the participating banks during the previous quarter.