Fiscal Council head flags concerns over rise in consumer loans

Fiscal Council president Michalis Persianis on Friday raised concerns over the growing trend in consumer loans, which, according to him, are being granted easily by some banks without collateral.

He warned that these loans are unproductive and could strain both households and the wider economy. 

In a statement to StockWatch, Persianis said that the council does not “welcome” the rise in consumer loans, pointing out that they “are granted very easily and without special collateral by some banks”.

He explained that while mortgages are productive, providing long-term returns on the property purchased, consumer loans can be used for non-productive purposes like entertainment, travel, or supporting the family budget.  

Unlike mortgages, he noted, “consumer loans do not create wealth for households”.

According to recent data from the Central Bank, Persianis emphasised that “overall household debts are decreasing due to a drop in housing loans”.

However, smaller consumer loans—typically between five to ten thousand euros—are on the rise. “The structure of the debt is worse, as it is consumable borrowing, which leaves no wealth for the households that will soon have to service it,” he stressed. 

Persianis linked the increase in consumer loans to the rising cost of living, which is driving Cypriot households to borrow more to meet daily needs.  

“It shows that there is distress in Cypriot households, it shows that people are in need,” he said, adding that this rise reflects spending pressures without financial offset. 

While banks should not typically approve loans for essentials like tuition fees or household needs, many consumer loans are instead being taken for less critical purposes.  

“Many are created without a meaningful purpose, such as entertainment, outings, and travel,” he said, describing these expenses as “weights on the family budget” that do not contribute to household wealth. 

Data from the Central Bank reveals that net new consumer loans reached €167.7 million in the first eight months of 2024, compared to €151 million during the same period in 2023.  

By contrast, consumer loans were €102 million in 2022, €100.9 million in 2021, and €106.4 million in 2019. Including restructurings, new consumer loans amounted to €185.9 million in the first eight months of 2024, compared to €173.7 million in 2023. 

On the other hand, net mortgages excluding restructuring totalled €700.3 million in the first eight months of 2024, compared to €655.3 million in 2023 and €842.8 million in 2022.  

While mortgage borrowing remains significant, Persianis emphasised that consumer loans, which do not generate wealth, present a worrying trend. 

Banking institutions currently offer consumer loans to cover household emergencies and personal needs, often with little or no collateral.  

Some banks offer amounts of up to €15,000 through online services, advertised as quick and easy financing options.  

However, these loans typically come with variable interest rates, long repayment periods, and no collateral, which Persianis cautioned may lead to further financial strain for households.