Banks expect stricter lending criteria for households

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Banks expect to enforce stricter lending criteria for households but not for COVID-affected businesses while preparing for increased demand for loans in all categories.

This is according to the Central Bank of Cyprus’ Bank Lending Survey (BLS) for the second quarter of 2021.

It said the unpredictable outbreak of the pandemic in early 2021 seems to have significantly affected the demand for loans from households and businesses, overturning estimates for Q1 2021, where banks expected an increase in demand.

The increase in COVID-19 cases at the end of 2020 and lockdown measures led to a decrease in demand for borrowing from households (reduced consumption and increased deposits due to uncertainty about their future financial situation) and by companies (reduction in demand for fixed investments due to uncertainty about economic prospects).

Despite the expectations to further impose stricter lending criteria for businesses, this did not happen,  as it appears that banks’ risk perception and risk tolerance improved in Q1 2021 compared to the previous quarter.

However, the Central Bank of Cyprus notes that based on expectations for Q2 2021, the criteria for lending to businesses were expected to remain unchanged, while for households for all loan categories, they were expected to become even stricter.