Credit standards for corporate loans tighten, remain unchanged for households

Credit standards for corporate loans continued tightening in the second quarter of 2024, whereas standards for households remained unchanged reflecting the respondent banks’ risk tolerance.

The Bank Lending Survey, carried out by the Central Bank of Cyprus, showed that loan demand from businesses remained unchanged whereas demand for household loans continued declining, impacted by the interest levels, amid the ECB’s restrictive monetary cycle.

With regard, to loan supply, the survey showed that, contrary to the expectations of the previous quarter, the lending standards to businesses tightened further in the second quarter compared with the previous quarter “due to reduced risk tolerance by the banks.”

On households, lending standards both for housing, consumer and other loans remained unchanged.

Credit conditions after seven quarters of tightening

Referring to overall terms and conditions for loans (which vary depending on the borrower’s profile) the CBC said "these reflect in part the direction of the monetary policy during the reference period.”

In the second quarter of 2024, the overall terms and conditions for new loans or credit limits to businesses, remained unchanged after seven quarters of tightening.

For households, the overall terms and conditions for housing loans were loosened compared to the previous quarter and for the first time since the first quarter of 2018 due to competition pressures, the CBC added.

The survey saw reduced lending rates and tightening of margins applied by banks for new housing loans, whereas terms and conditions for consumer and other household loans remained unchanged although, the survey noted reduced lending rates for these loan types.

Furthermore, net credit demand by businesses remained unchanged in the second quarter of this year, whereas demand for household credit declined further both for housing and consumer loans.

According to the CBC, demand by businesses showed negative impact by the overall lending rates and reduced financing for mergers and acquisitions and restructurings which was offset by an increase in financing needs both for fixed investments, stock and working capital.

On household credit demand, the survey showed that net demand declined due to increased interest rates and low consumer confidence, while demand for consumer credit was down driven by lower consumer confidence and lower spending for durable goods.

Moreover, the survey also showed that rejections of loan applications increased further both for businesses as well as households.

On the banks’ expectations for the coming quarter, the survey showed that lending standards both for businesses and households are expected to remain unchanged.

(Source: CNA)