Banks to Tighten Credit Scoring Conditions

0

By Obinna Chima

Commercial banks are expected to tighten their credit scoring criteria next quarter but anticipate that the total loans applications to be approved in the third quarter of 2018 (Q3 2018) would increase, a survey by the Central Bank of Nigeria (CBN) has revealed.

Also, the report revealed that the proportion of approved credit card loans remained unchanged in Q2 2018 due to lenders’ stance on the credit scoring criteria for granting credit card loans.

The CBN stated this in its Credit Conditions Survey Report for the second quarter of 2018, that was posted on its website.

Households demand for consumer loans rose in the current quarter and was expected to rise next quarter.

Similarly, demand for mortgage/re-mortgaging from households fell in Q2 2018 but was expected to rise in Q3 2018.

In the current quarter relative to the previous quarter, the survey stated that lenders reported an increase in the availability of secured credit to households.

They also noted that improved liquidity position and market share objectives were major factors behind the increase.

Availability of secured credit was expected to increase in the next quarter, with favorable economic outlook and market share objectives as the likely contributory factors.

Although lenders maintained the same credit scoring criteria in the second quarter of 2018, according to the survey, the proportion of loan applications approved in the quarter increased.

It revealed that the Maximum Loan to Value (LTV) ratios remained unchanged in the current quarter and were expected to also increase in the next quarter.

But, lenders were willing to lend at low LTV ratios (75% or less) in the current and next quarters.

“However, they expressed willingness to lend at high LTV (more than 75%) in the current and the next quarters.

“The average credit quality on new secured lending improved in Q2 2018 and was expected to improve in Q3 2018,” it added.

Also, the report showed that demand for lending by households increased in Q2 2018 and was expected to increase in the next quarter.

“Secured loan performance, as measured by default rates, improved in Q2 2018 and is expected to improve in Q3 2018.

“Similarly, loss given default improved in the current quarter and it is expected to improve in the next quarter.

“The availability of unsecured credit provided to households rose in the current quarter and was expected to rise in the next quarter.

“Lenders reported higher appetite for risk and increased availability of funds as the major factors that contributed to the increase in Q2 2018.

“Despite lenders’ resolve to tighten the credit scoring criteria for total unsecured loan applications in the review quarter, the proportion of approved total loan applications for households increased,”it added.

Lenders reported that spreads on credit card lending widened in Q2 2018 but were expected to remain unchanged in the next quarter.

Spreads on unsecured approved overdrafts/personal loans applications remained unchanged in the current quarter and was expected to remain unchanged in the next quarter.

Overall spreads on unsecured lending remained unchanged in the current quarter, and was expected to be same in the next quarter.

The limit on unsecured credit cards on approved new loan applications remained unchanged in Q2 2018 but was expected to decrease in the next quarter.

The minimum proportion of credit card balances to be paid on approved new loan applications increased in the review quarter, and was expected to further increase in the next quarter.

Maximum maturities on approved unsecured new loan applications lengthened in the current quarter, but lenders anticipated that they will shorten in the next quarter.

Demand for unsecured credit card lending from households increased in Q2 2018 and was expected to increase in Q3 2018. Similarly, demand for unsecured overdraft/personal loans from households increased in Q2 2018 and was expected to increase in Q3 2018.

Lenders experienced higher default rates on credit card, but lower default rates on overdrafts/personal lending to households in the current quarter. They however, expect improvement in default rates in the next quarter.

Losses given default on total unsecured loans to households improved in Q2 2018 and were expected to improve in the next quarter.

Credit conditions in the corporate sector vary by size of the business. The survey asked lenders to report developments in the corporate sector by large and medium-size PNFCs, OFCs and small businesses1.

The overall availability of credit to the corporate sector increased in Q2 2018 and was expected to increase in Q3 2018.

This was driven by changing sector-specific risks, favourable economic conditions, improved liquidity conditions, market share objectives and changing appetite for risk.

Lenders reported that the prevailing commercial property prices negatively influenced credit availability of the commercial real estate sector in the current quarter.

Similarly, lenders expect the prevailing commercial property prices to negatively influence secured lending to PNFCs in the current quarter.

Availability of credit increased for all business sizes in Q2 2018. Lenders expect the same trend in the next quarter.

Changes in spreads between bank rates and MPR on approved new loan applications for all business sizes widened in Q2 2018, and were expected to widen for all business sizes except for small businesses in Q3 2018.