During the first quarter of 2023 in Cyprus, there was a continuation of stricter lending criteria for businesses, marking the fourth consecutive quarter of such measures. This was primarily due to banks perceiving increased credit risk in the market. At the same time, lending criteria for households, across all loan categories, remained unchanged at the stringent levels observed in the previous quarter. These findings were reported in the April 2023 Banking Lending Survey conducted by the Central Bank of Cyprus.

In terms of loan demand, both businesses and households experienced a decline in net loan requests for consumer loans, other types of loans, and particularly housing loans during the first quarter of 2023.

Looking ahead to the second quarter of 2023, the survey indicated that banks anticipate even stricter lending criteria and a further decrease in loan demand in Cyprus. This applies to both business loans and loans for households across all categories.

The survey results highlighted that banks' perception of increased credit risk, associated with the overall economic conditions and prospects as well as specific industries or companies, has led to a continued tightening of lending criteria for business loans.

Similarly, the lending criteria for household loans remained unchanged at strict levels during the first quarter of 2023. Banks maintain an increased perception of risk regarding the general economic situation and prospects, as reported in the survey.

Furthermore, the survey conducted by the Central Bank of Cyprus revealed that overall terms and conditions for granting new loans or credit limits to businesses became stricter during the first quarter of 2023. This included tighter clauses and longer durations for new business loans. Although the net margin of banks for regular loans decreased, varying opinions were observed among different banks.

Similarly, the tightening of overall terms and conditions for business loan issuance aligns with banks' perception of increased risk and reduced risk tolerance. However, the competitive landscape among banks has somewhat constrained the extent of tightening in overall terms and conditions.

During the same period, the overall terms and conditions for granting loans to households, including housing and consumer loans, became stricter. While the margin of banks for higher-risk housing loans increased due to heightened risk perceptions, the other terms and conditions remained unchanged.

Overall, the survey findings indicate that banks are responding to perceived increased risks by implementing stricter lending criteria, both for businesses and households. This cautious approach is driven by banks' decreased risk tolerance and intensified competition in the banking sector.