September 25, 2018

Banks, OFIs record higher default rates on credit cards, overdraft in Q3’18

By Elizabeth Adegbesan
A report by the Central Bank of Nigeria, CBN, has indicated that the rate of default in household loan repayments is on the increase in the third quarter of 2019, Q3’19. The report did not give absolute figures.

Titled: ‘Credit Condition Survey (CCS) Report, Q3’2018, the survey report said commercial banks and other financial institutions, OFIs recorded higher default rates on credit card and overdrafts/personal lending to households during the period.

The report, however, predicted that there would be an improvement in the fourth quarter 2018, Q4’18.

The report stated: “In the current quarter relative to the previous quarter, lenders reported an increase in the availability of secured credit to households. They noted that market share objectives and improving economic outlook were major factors behind the increase.”

The report also stated: “Availability of secured credit was expected to increase in the next quarter, with market share objectives and higher appetite for risk as the likely contributory factors.

“Lenders maintained the same credit scoring criteria in Q3 2018, and the proportion of loan applications approved in the quarter decreased. Lenders expect to tighten the credit scoring criteria in the next quarter, yet still expect an increase in the proportion of approved households’ loan applications in Q4 2018.

“The availability of unsecured credit provided to households fell in the current quarter but was expected to rise in the next quarter. Lenders reported market share objectives and improved economic outlook as the major factors that contributed to the increase in Q3 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. Lenders expect to leave unchanged the credit scoring criteria in the next quarter, but anticipate that the total loans applications to be approved in Q4 2018 will increase.

“Demand for unsecured credit card lending from households decreased in Q3 2018 but was expected to increase in Q4 2018. However, demand for unsecured overdraft/personal loans from households increased in Q3 2018 and was expected to increase in Q4 2018.

“Lenders experienced higher default rates on credit card and on overdrafts/personal lending to households in the current quarter. They however, expect improvement in default rates in the next quarter for all loan types. Losses given default on total unsecured loans to households improved in Q3 2018 and were expected to improve in the next quarter.

“More collateral requirements were demanded from all firm sizes on approved new loan application in Q3 2018. Similarly, lenders will demand for more collateral from all firm sizes in the next quarter.

“Households demand for consumer loans rose in the current quarter and is expected to rise in the next quarter”, the report stated.