Cyprus banks entered the second quarter of 2026 with lending standards largely unchanged, even as household demand for credit continued to strengthen and uncertainty in the Middle East weighed on some corporate investment plans, according to the Central Bank of Cyprus (CBC).
Credit Conditions Hold Steady Across Borrowing Categories
Standards for loans to companies and households, including housing loans and consumer credit, were unchanged from the previous quarter. The CBC survey found that the factors shaping credit standards across all loan categories had a neutral effect during the period.
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That result diverged from earlier bank expectations, which had pointed to some tightening. Instead, lending conditions remained broadly stable for businesses, small and medium-sized enterprises, large corporations, mortgage borrowers and consumers alike.
For businesses, credit standards have remained at relatively tight levels since the second quarter of 2024. Housing loan standards have been unchanged since the first quarter of 2024, while consumer credit conditions have also held steady since then.
Banks expect that stability to continue in the third quarter of 2026.
Loan Terms Also Show Little Movement
The overall terms and conditions attached to new business loans were unchanged in the second quarter, following a tightening in the previous quarter. Individual lending terms were broadly stable, and the factors influencing those terms had no meaningful impact.
New housing loans followed a similar pattern. Overall terms were unchanged for a fifth consecutive quarter, although lending rates rose in part because of previous increases in European Central Bank policy rates. Other mortgage conditions were flat, with no significant shift in the factors affecting them.
Consumer credit and other household lending also remained broadly unchanged for a fifth straight quarter. The CBC said that this stability in consumer lending conditions signals continued momentum in private consumption, which remains supportive of broader economic activity.
The share of rejected loan applications, whether formal or informal, was unchanged across all loan categories, reinforcing the picture of a stable credit environment.
Business Demand Softens In Key Sectors
On the demand side, overall business borrowing was unchanged in the second quarter, even as financing needs for fixed investment declined. The drop was driven mainly by large companies, with the sharpest declines reported in tourism and energy.
In tourism, weaker demand may reflect mounting uncertainty tied to the ongoing crisis in the Middle East. In energy, the slowdown was linked to investment in renewable projects and concerns about expected returns, including limits on the electricity grid’s capacity to absorb additional output.
Demand from SMEs, by contrast, remained unchanged during the quarter.
Households Continue To Borrow More
Household demand moved in the opposite direction. Demand for housing loans increased further in the second quarter, outpacing banks’ April expectations that it would remain flat.
According to the CBC, the rise was supported by relatively high interest rates by historical standards, as well as improving conditions in the housing market. The increase appears to have been driven by both owner-occupied homes and properties bought for rental income.
Demand for consumer credit and other household lending also rose for a third consecutive quarter, once again beating banks’ expectations. The increase was attributed to stronger spending on durable goods and improved consumer confidence. The survey also points to supportive labour market conditions as a factor underpinning household borrowing.
Outlook For The Third Quarter
Looking ahead, banks expect business loan demand to remain unchanged in the third quarter of 2026. Household demand, however, is projected to keep rising for both housing loans and consumer credit.
The latest survey suggests that Cyprus’s lending market entered the second half of 2026 with little change in overall credit availability, but with a clearer divide between cautious corporate borrowers and more active households.
Companies remain restrained by geopolitical risk and infrastructure-related constraints, while households continue to show a stronger appetite for property-related borrowing and consumer finance.
