New housing loans drop by a third

Demand for housing loans dropped by almost 40% in the first quarter of the year, as Cypriot households are put off by rising interest rates, according to the Central Bank of Cyprus.

Last Thursday, the European Central Bank pushed interest rates up by 0.25%, announcing its seventh increase since July 2022 in a bid to curb inflation.

The ECB has now brought the eurozone’s key interest rate to 3.75%

According to the latest data released by the CBC, new loans to households showed a decrease of 37.3% in the first three months of 2023, dropping to EUR 308 mln from EUR 491 mln in the same quarter last year.

However, when compared to 2019 the data showed an increase of 4.4%.

As the CBC pointed out in its latest economic bulletin, the decline in new home loans observed, also recorded in the second and third quarters of 2022, may reflect the end of the government’s interest rate subsidy for housing loans, as well as the gradual increase in interest rates by the ECB.

CBC’s survey notes that, according to Cypriot banks, the drop in demand for housing loans is attributable to the upward trend in interest rates, the deterioration of consumer confidence and, to a lesser extent, the less favourable housing market outlook.

Business loans

Meanwhile, business loans issued in the first three months of the year have increased by 6.8% compared to the same period last year, reaching EUR 448 mln, up from 420 mln.

Compared to the same period in pre-COVID 2019, there is a decrease of 19.2%.

The total amount of loans channeled by banks to households and businesses, excluding restructurings, dropped to EUR 756 mln in the first quarter of 2023, from EUR 911 mln in 2022, and EUR 849 mln in 2019.

According to the CBC, since July 2022, the dynamics in lending have slowed down, reflecting the increased uncertainty in the geopolitical and economic environment, the even more stringent lending criteria of banks, higher interest rates and the negative impact of inflation on real disposable income of households and in the profit margin of businesses.

“At the same time, the increased uncertainty due to successive crises and the upward trend of interest rates seem to be limiting new corporate borrowing for large investment projects,” noted the CBC.

According to Central Bank data, new loans granted by banks in 2022 amounted to EUR 3.2 bln from EUR 2.9 bln in 2021, marking an increase of 10%.

Compared to 2019, total loans show an increase of 8.4%.