The Major Business Departments of the banks are invited to contribute to the transformation of Cypriot businesses and the economy, supporting investments that promote the green transition and the reduction of the carbon footprint of business activities.
The Major Business Departments of the banks, the well-known corporate banking staff departments,are at the forefront of financing the economy, they are called to allocate the excess liquidity they have in their coffers to healthy businesses and investments and to support Cypriot entrepreneurs to implement their business plans. These bank departments, through financing mainly to large companies, are called upon to contribute to the transformation of Cypriot businesses and by extension the economy, as well as to support the financing of important investments that boost growth and create new jobs.
The goal is that within the next five years, 20% to 30% of their financing will support green investments, in the direction of zero carbon emissions in the medium term. As banking sources point out, the green transition presupposes large-scale investments in critical sectors, such as infrastructure, energy, transport, health, redesign of building spaces, hotels and, more broadly, tourism, shipping. They emphasize that achieving the goal across the economy requires fundamental changes in companies with a larger carbon footprint and of course their adequate financing.
The Until now, the interest of the Corporate Banking departments for financing has been focused on specific sectors of the economy, such as health, tourism, trade or financing of large developments and infrastructure projects or even syndicated loans.
Specialized departments
The banking institutions that have a presence in Cyprus bet on corporate clients, giving their presence in the market through specialized departments and staff, to offer a series of loan and deposit products, financial solutions adapted to the needs of large businesses, for the management of personal and their investment needs.
Corporate Banking executives do not fail to emphasize at every opportunity, through the presentations that are made, that the possibilities offered to businesses today are multidimensional and meet their needs in an environment that is constantly changing and becoming more and more competitive.
Loaning is expensive
Banks may have a lot of cash from deposits and want to lend it to the business world, but there are also some barriers, which limit financing. There are mainly two reasons why new credits are given with great care or even with the dropper. Many companies have frozen their investment plans, mainly due to the increased cost of interest rates and the uncertainty in the economic and geopolitical reality internationally, while on the other hand banks have set the bar for credit strictness at high levels.
The latest figures announced by the Central Bank show that businesses are cautious to hesitant in their demand for new loans and furthermore are constantly resorting to restructuring their loan portfolios, in order to cope with increased costs and repayment obligations.
In 2023, the new loans given to the business world, up to €1 million, were in the order of €525.7 million, compared to €530.6 million in 2022.
In the loans above of €1 million, the picture is completely different, showing that large companies do not make investment openings easily, with the result that the difference is particularly noticeable. The value of new loans in 2023 was €1.39 billion, compared to €3.05 billion in 2022.
It should be pointed out that now companies borrow at a higher cost from banks compared to previous years and this is one of the reasons why the demand for financing is kept at low levels.
The interest rate for loans to non-financial companies for amounts up to €1 million may have decreased in December 2023 to 5.62%, compared to 6.00% the previous month, but it is at high levels, if compared to in December 2022 which was reduced by 4.71% and by 3.25% in December 2021.
The interest rate regarding loans to non-financial companies for amounts over €1 million recorded an increase in December 2023 to 5.73%, compared to 5.59% last month and 3.65% in December 2022.
Green and digital transformation
Today, the business path to success is inextricably linked to technological development, and for this reason there is competition among banks to offer better, modern and flexible digital propositions to their customers, so that they can operate in a digital environment.
A visit to the banks' websites highlights the importance that banks give to Corporate Banking, offering specialized products and credit solutions for the modern needs of Cypriot small and medium enterprises and medium or larger companies.< /p>
The portfolio of the Large Enterprise Service includes companies of various activities. As a matter of fact, all banks they support and finance every company that presents an integrated and sustainable business plan, they are evaluated with strict lending criteria and emphasis is placed on the ability to repay, on the basis of effective management of the company's liquidity.
In the era of digital transformation, the field of Corporate Banking is constantly being strengthened, through innovative electronic tools to automate business processes and control business transactions. On the websites, the banks provide detailed information on the services they offer to their corporate clients so that they can have digital control of the business, access the rest of the history of movements, in the state of transactions, creation of payroll, electronic payments, in order to use in their daily life all the possibilities provided by the digital transformation. In this regard, banks have made considerable progress in the field of corporate banking and, with the contribution of specialized employees, offer digital solutions for the modern way businesses operate.
At the same time, the green transition is a serious bet for everyone and the businesses are called on the one hand to reduce energy consumption and consequently the operational costs and on the other hand to adopt greener practices, reducing their environmental footprint, for the benefit of themselves and the planet. Banks, through the management of large companies, direct their clients towards sustainable development and the implementation of ESG (Environment, Social, Governance) criteria. The aim is to guide customers towards a sustainable future by providing products and solutions that promote sustainability in customers' business plans, guide them towards the principles of best corporate governance and are also environmentally friendly.
Banks may be doing a lot in this direction in recent years but the European Central Bank (ECB) has repeatedly highlighted that banks in the Eurozone are not doing enough to prepare for the impact of extreme weather events on the value of their balance sheets or credit losses if borrowers with a large carbon footprint are forced to go out of business.
Not just a Cypriot phenomenon
“Trip” loans in business it is not only a Cypriot phenomenon but a pan-European one. Tightening credit standards, combined with high interest rates, are having a significant impact on demand for loans in the euro area, although the picture is showing signs of improvement, according to the European Central Bank's latest bank lending report.
Specifically, the survey says that credit standards – that is, banks' internal guidelines or loan approval criteria – for loans or credit lines to businesses tightened, albeit moderately, at the end of 2023.
From the data announced by the Central Bank, it appears that the decrease in net demand for business loans at the end of 2023 continues to reflect the negative effect of higher lending rates, due to the restrictive monetary policy in the euro area, as well as the reduced demand for financing fixed assets investments. It is also noted that companies show procrastination in promoting long-term investment plans, with their lending demand focusing mainly on their increased needs for financing stocks and working capital, due to increased operating expenses.
LARGE – MEDIUM – SMALL, BASED ON THE EUROPEAN DEFINITION
Corporate Banking departments of banks are aimed at large companies. But how many large companies are there in Cyprus based on the European definition? Probably the number is very small, if we consider the European standards. A very small business is one that employs between 0 and 10 staff and its annual turnover, as well as its balance sheet, does not exceed €2 million. A small business is one that employs less than 50 staff and its annual turnover and the balance sheet do not exceed €10 million. A medium-sized company is one that employs fewer than 250 staff and the annual turnover does not exceed €50 million, while its annual balance sheet does not exceed €43 million. A large company is that which employs more than 250 staff, the annual turnover exceeds €50 million, while its annual balance sheet exceeds €43 million.
According to the latest data available from the Statistical Service, the number of businesses in Cyprus is 109,220. Those that employ 0-9 workers are 103,836 and the market share amounts to 95.1%. There are 4,550 businesses employing 10-49 people with a share of 4.2%. There are 714 companies employing between 50 and 249 people and their market share is only 0.6%. Businesses employing more than 250 people are 120 and their market share is just 0.1%.
From Insider magazine February
