Cyprus banks are keeping a tight lid on loans given out to consumers and businesses as credit expansion in 2019 is restricted to a single figure percentage, despite the high liquidity in their coffers.
According to the Central Bank of Cyprus data, new loans granted by banks were down to €2.7 bln in October, up by just a 5.3% year-on-year.
Banks have surplus liquidity of €14 bln, as packaging and selling off loans along with write-offs, coupled with changes brought about with the collapse of the Co-op Bank, have significantly reduced their lending balances as customer deposits increase.
Despite the high liquidity available, banks are not lending out significantly more loans, arguing that they find it difficult to find viable borrowers to issue new loans, as about half of individuals and many businesses already have non-performing loans.
As a result, some of the major banks are planning to invest their excess liquidity in non-Cyprus investments to avoid the penalty imposed by the European Central Bank on deposits that Cypriot banks “park” in Frankfurt.
Banks appear unable to give out loans despite the improved macroeconomic indicators and low-interest rates on offer.
Specifically, total loans extended by banks to households and businesses, excluding restructuring, stood at €2.68 bln from €2.54 bln in the same period last year, recording a relatively small increase of 5.3%.
New business loans are up 5.6%. They rose to €1.65 bln from €1.56 bln, figures revealing a diminished interest from businesses for new ventures.
New loans to households rose by just 4.8% to €1.03 bln from €984 mln, despite the extremely low-interest rates on mortgages and consumer loans.
A crunch on new lending is observed at a time when lending rates are at historically low levels.
The interest rate on loans for home purchase fell to 2.08%, from 2.13% in the previous month.
The interest rate on loans to non-financial corporations for amounts up to €1 mln recorded a significant decrease to 3.08%, from 3.37% in September.
October interest rate on loans to non-financial corporations for amounts over €1 mln declined significantly to 3.01%, compared to 3.37% the previous month.
The interest rate on one-year term deposits for households decreased to 0.12%, from 0.16%.
The corresponding interest rate on deposits from non-financial corporations rose to 0.31%, compared to 0.13% in September.
