According to the Central Bank, at the end of August the balance of loans to local companies was 10.652 billion euros, an amount that corresponds to 51.2% of the country's GDP at 2020 prices. Loans to businesses in the European Union are 1.193 billion euros and to companies in the rest of the world 3.085 billion euros.
Focusing on domestic companies, although the amount of debt does not seem prohibitive, especially if combined with the existence of deposits amounting to 9.728 billion euros, the problem of the inability of many companies to access bank lending is recorded.
The great interest of the Cypriot companies for inclusion in the subsidy plans of the Ministry of Commerce shows the “thirst” for finding resources for the implementation of new investments. Cypriot companies want to invest in their future, but they lack the money. Grant schemes are a solution for businesses. The National Recovery Plan and the Cohesion Fund's operational program provide ample funding, unique to the Cypriot data. Obtaining this funding from the private sector should not be taken for granted. The projects subsidize 60% of the investment projects. The remaining amount must be covered by own participation. Recourse to bank lending is the expected option.
We have banks full of cash, but they have to lend according to commercial criteria, that is, to judge whether the business plan they have in their hands makes sense and can bring the cash flows it promises to repay the bank loan. The existence of a state sponsorship does not guarantee the success of the project. At the same time, banks are required to seek collateral to cover the loss of any investment failure. This is where the problems begin.
Things would be easier if the company could participate in the business plan with own funds, but the Cypriot entrepreneurship is still recovering from the crisis of 2013. What we call “capital” in Cyprus does not exist. However, we have before us a problem that needs to be solved. Drawing on experiences from other countries, setting up a national development bank could “free up” banking liquidity, covering part of the private sector risk.
This work has been done by the EIB to date. Today, however, something more is needed. A public support body for commercial banks will provide solutions to the problem of private sector financing by offering guarantee tools, and will help absorb Community funds intended for businesses.