New loans in Cyprus fell by €18.5 million in October, settling at €429.4 million, primarily driven by a slowdown in corporate lending, according to the latest report from the Central Bank of Cyprus (CBC).
- These figures encompass both new and renegotiated contracts, as noted by the CBC.
Overall, total new loans reached €624.9 million, a notable decrease from €770.5 million in September, when net new lending stood at €447.9 million. The CBC highlighted that this monthly decline is largely attributed to reduced borrowing by businesses, even as private households continue to increase their borrowing for housing.
New loans: Growth in Housing Loans
In October, net new housing loans rose to €117.5 million, out of €158.7 million in new contracts. This contrasts with the previous month, where net new housing loans were €112.9 million. The demand for housing loans seems to remain robust, suggesting a sustained interest in property purchases.
Consumer Lending Gains Traction
Consumer lending also showed positive growth, with net new consumer loans climbing to €23.7 million, up from €21.2 million in September. This trend indicates that households are increasingly comfortable taking on debt for non-housing expenditures.
Corporate Lending Weakens
Conversely, lending to non-financial companies has seen a decline. Loans up to €1 million dropped to €50.8 million from €68.3 million in new contracts, compared to €62.7 million in the preceding month. Larger loans above €1 million also decreased to €232 million from €359.6 million, down from €246.7 million in September.
Interest Rates on the Rise
In tandem with these lending trends, interest rates for most new loan categories have increased. The consumer loan rate rose to 6.88 per cent from 6.46 per cent the month prior, while the mortgage rate increased to 3.73 per cent, compared to 3.63 per cent. The CBC noted that the mortgage portfolio encompasses various types of housing credit, including first-home and holiday-home loans, each presenting unique risk profiles.
Corporate Loan Rates Fluctuate
For loans to non-financial companies up to €1 million, the interest rate increased to 4.39 per cent from 4.32 per cent. However, for loans exceeding €1 million, the rate saw a slight decline to 3.69 per cent from 3.79 per cent. These shifts in interest rates reflect the ongoing adjustments within the lending landscape.
Deposit Rates Remain Low
Deposit interest rates have seen only marginal changes. Household time deposits of up to one year decreased to 1.07 per cent from 1.10 per cent in the previous month, while rates for deposits from non-financial companies edged down to 1.23 per cent from 1.24 per cent.
Cyprus Compared to Eurozone
The CBC provided insights into how Cypriot interest rates stack up against the Eurozone. Lending rates on existing balances in Cyprus are closely aligned with the Eurozone median, with no margin for households and a narrow margin of 0.4 per cent for non-financial companies. For new business, the weighted average margin for new housing loans stands at -0.3 per cent, which is below the Eurozone median, while the margin for non-financial companies is limited to 0.1 per cent.
High Liquidity and Deposit Divergence
Interestingly, deposit rates in Cyprus remain the lowest in the Eurozone, a gap attributed to the high liquidity of Cypriot banks and the limited size of the domestic market. The liquidity coverage ratio reached a staggering 329 per cent in October, significantly above the Eurozone median of 183 per cent and the EU average of 162 per cent.
These figures encompass both new and renegotiated contracts, as noted by the CBC.
