Loan demand has risen significantly in Cyprus, as both businesses and households seek financial support amid changing economic conditions. According to the Central Bank of Cyprus (CBC) bank lending survey, net demand for loans increased in the second quarter of 2025, driven primarily by the need for mortgage and consumer loans.
Growing Interest from Businesses and Households
The CBC survey indicates that the demand for loans has been bolstered by various factors. For businesses, the increased need is linked to financing requirements for inventories and working capital, along with fixed investments. Households, on the other hand, are responding to a favourable interest rate environment and a more optimistic housing market.
Mortgage Loans Lead the Surge
Specifically, the report highlights that mortgage loans saw a notable surge in demand, attributed to rising consumer confidence and an improved outlook for the housing market. The net increase in demand for consumer loans also reflects a broader trend towards borrowing, influenced by the current level of interest rates.
Stable Lending Criteria Amidst Rising Demand
Despite the surge in loan demand, the lending criteria for both businesses and households remained stable during the second quarter. The CBC’s findings revealed that all factors affecting lending criteria had a neutral impact during this period. As stated in the report, “The overall terms and conditions for new loans or credit facilities to businesses and for new mortgage, consumer and other loans to households also remained unchanged during the second quarter of 2025 compared with the previous quarter.”
Shifts Expected in Lending Standards
Looking ahead, banks anticipate tightening lending criteria for businesses in the upcoming third quarter of 2025. However, they expect household lending standards to remain unchanged. This potential shift may reflect a cautious approach by banks in response to rising demand and changing economic conditions.
Interest Rates and Competitive Pressures
The CBC survey noted a decrease in interest rates for new business loans, alongside a reduction in banks’ margins for standard new business loans. This trend is attributed to increased competition among banking institutions and a perceived lower risk due to the current economic climate. For households, similar trends were observed, with falling interest rates on new mortgage loans driven by competitive pressures.
Future Outlook for Loan Demand
As banks prepare for the third quarter, they expect net demand for loans from businesses to remain stable, while further increases in demand for mortgage and consumer loans are anticipated. This outlook underscores the ongoing interest in borrowing, driven by both economic conditions and consumer behaviour.
