By Obinna Chima
The Central Bank of Nigeria’s (CBN) Credit Conditions Survey Report for fourth quarter (Q4) 2020 has stated that the availability of credit to the corporate sector increased in Q4 2020, and was also expected to rise in the first quarter (Q1) of 2021.
According to the report posted on the Bank’s website yesterday, the growth in Q4 was driven by changing sector-specific risks, market share objectives, changing appetite for risk, changing economic conditions and changing liquidity conditions.
It stated that lenders reported that the prevailing commercial property prices positively influenced credit availability for the commercial real estate sector in Q4 2020 and would continue in Q1 2021.
It also showed that the proportion of loan applications approved for all business sizes increased in Q4, adding that all firms benefitted from an increase in maximum credit lines on approved new loan applications in Q4 2020, and were expected to benefit from an increase in maximum credit lines on approved new loan applications in Q1 2021.
“More collateral requirements were demanded from all firm sizes on approved new loan applications in Q4 2020 and lenders expect to demand higher collateral from all firm sizes in the Q1 2021. Demand for corporate lending decreased for all business sizes except for small businesses and OFCs in Q4 2020.
“However, demand for corporate lending for all firm sizes are expected to increase in Q1 2021.
“The most significant factors that influenced demand for lending in the review period were increase in merger and acquisition and restructuring of balance sheet. However, inventory finance and capital investment are expected to drive demand in Q1 2021.
“Corporate loan performance as measured by the default rates worsened for small businesses and medium public non-financial corporations (PNFCs) but improved for large PNFCs and OFCS in Q4 2020. However, lenders expect lower default rates on lending to all sized businesses in Q1 2021.”
According to the survey, lenders reported an increase in the availability of secured credit to households in the fourth quarter of 2020, relative to the previous quarter.
It stated that the changing economic outlook and increased market share objectives were major factors responsible for the increase.
Similarly, availability of secured credit was expected to increase in Q1 2021, with changing economic outlook and increased market share objectives as the likely contributory factors.
“The proportion of loan applications approved in Q4 2020 decreased, as lenders tightened their credit scoring criteria. Lenders expect to further tighten the credit scoring criteria as they pre-empt the proportion of approved households’ loan applications to increase in Q1 2021.
“Maximum Loan to Value (LTV) ratios remain unchanged in Q4 2020 and is expected to remain same in Q1 2021. Lenders were not willing to lend at low LTV ratios (75% or less) in Q4 2020 and Q1 2021. However, lenders were willing to lend at high LTV (more than 75%) in Q4 2020 and are willing to lend at high LTV (more than 75%) in Q1 2021.
“The average credit quality on new secured lending improved in Q4 2020 and is expected to improve in Q1 2021. Lenders reported that the overall spreads on secured lending rates to households relative to MPR narrowed in Q4 2020 and are expected to remain same in Q1 2021. Similarly, spreads for all lending types narrowed in the Q4 2020 and are expected to narrow in Q1 2021.”
In addition, the survey stated that household demand for consumer loans increased in Q4 2020 and was expected to increase in Q1 2021.
Similarly, it added that demand for mortgage/remortgaging from households increased in Q4 2020 and is expected to also increase in Q1 2021.
Secured loan performance, measured by default rates, worsened in Q4 2020 and was expected to remain unchanged in Q1 2021.
“Bank lenders reported low loss given default by households in Q4 2020, and they also expect lower losses in Q1 2021. As lenders’ resolve to tighten the credit scoring criterion for total unsecured loan applications in Q4 2020, the proportion of approved total loan applications for households increased.
“Lenders expect to also tighten the credit scoring criteria in Q1 2021 and anticipate that the proportion of approved loan applications will also increase. The proportion of approved credit card loans increased in Q4 2020, though the credit scoring criteria for granting credit card loans was tightened.
“However, the proportion of approved overdraft/personal loan applications increased, as lenders tightened the credit scoring criteria. Demand for unsecured credit card lending from households increased in Q4 2020, and is expected to increase in Q1 2021. Similarly, demand for unsecured overdraft/personal loans from households increased in Q4 2020 and is expected to further increase in Q1 2021.
“Lenders experienced lower default rates on credit card and overdrafts/personal lending to households in Q4 2020 and expect lower default rates in Q1 2021. Losses given default on overdraft/personal loans to households and losses given on total unsecured loans to households declined in Q4 2020,” it added.