*As loan default rises in Q4’18
By Babajide Komolafe
Banks will increase lending rates for corporate organisations in the first quarter (Q1’19) of next year even as the industry recorded increased loan default by households in the fourth quarter of this year (Q4’18).
The Central Bank of Nigeria (CBN) disclosed this yesterday in its Credit Conditions survey report for Q4’18.
Among other things the report showed increased supply of loans by banks to households and corporates in Q4’18, driven by improved economic outlook and quest for increased market share.
The report however showed that while banks approved more loans to households during the quarter, more households defaulted on their loans, leading to a rise in default rates for secured and unsecured loans to households during the quarter.
The report also revealed that while banks kept lending rates constant for loans to households and corporates in Q4’18, they will however increase lending rates for loans to corporates in the next quarter, Q1’19.
Secured Credit to Households
The report stated: “In the current quarter relative to the previous quarter, lenders reported an increase in the availability of secured credit to households. Improving economic outlook and higher appetite for risk were major factors behind the increase. Availability of secured credit was expected to increase in the next quarter as well, with improving economic outlook and market share objectives as the likely contributory factors
“Lenders maintained the same credit scoring criteria in Q4 2018, but the proportion of loan applications approved in the quarter decreased. Lenders expect to loosen the credit scoring criteria in the next quarter, yet still expect an increase in the proportion of approved households’ loan applications in Q1 2019.
“Households demand for lending for house purchase decreased in Q4 2018 but was expected to increase in the next quarter. For the current quarter, households demand for prime lending and buy to let lending decreased, while demand for other lending increased. Demand for prime lending and demand for other lending were expected to increase, while demand for buy to let was expected to increase, in the next quarter.
“Households demand for consumer loans rose in the current quarter and is expected to rise in the next quarter. Demand for mortgage/remortgaging from households fell in Q4 2018 but is expected to rise in Q1 2019.
“Secured loan performance, as measured by default rates, worsened in Q4’18 but is expected to improve in Q1’19. However, bank lenders reported lower losses given default by households in both the current next quarters”.
Unsecured credit to Households
The report further revealed that, “Availability of unsecured credit provided to households rose in the current quarter and is expected to rise in the next quarter. Lenders reported market share objectives and higher appetite for risk as the major factors that contributed to the increase in Q4 2018.
“Despite lenders’ resolve to leave the credit scoring criteria for total unsecured loan applications unchanged in the review quarter, the proportion of approved total loan applications for households increased. Lenders expect to tighten the credit scoring criteria in the next quarter, but anticipate an increase in the total loans applications to be approved in Q1 2019.
“The proportion of approved credit card loans increased in Q4 2018 due to lenders’ stance on the credit scoring criteria for granting credit card loans. Similarly, the proportion of approved overdraft/personal loans applications increased.
“Lenders reported that spreads on credit card lending widened in Q4 2018 but were expected to remain unchanged in the next quarter. Spreads on unsecured approved overdrafts/personal loans applications widened in the current quarter and was expected to widen in the next quarter. Spreads on overall unsecured lending widened in the current quarter, and was expected to widen in the next quarter
“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 Q4’18 and were expected to improve in the next quarter.”
Credit to Corporates
According to the report, “The overall availability of credit to the corporate sector increased in Q4 2018 and was expected to increase in Q1 2019. This was driven by favourable economic conditions, changing sector-specific risks, 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. However, lenders expect the prevailing commercial property prices to positively influence secured lending to PNFCs in the current quarter.
“Spreads between bank rates and Monetary Policy Rates (MPR) on approved new loan applications widened for all business sizes except for loans to other non financial corporations (OFCs) in Q4 2018, but were expected to widen for all business sizes in Q1 2019.
“The proportion of loan applications approved for all business sizes increased in the current quarter, and are expected to further increase in Q1 2019.
“Lenders required stronger loan covenants from all firm sized businesses in the current quarter. However, they reported that they would require stronger loan covenants for all firm sized businesses except for small business, which they plan to leave unchanged, in the next quarter.
“For the current quarter, fees/commissions on approved new loan applications fell for medium public non-financial corporations (PNFCs) and OFCs, and rose for small and large businesses; while for Q1 2019 lenders expect fees/commissions on approved new loan applications to fall for medium PNFCs, remain unchanged for small and large PNFCs, and rise for OFCs.
“Small and medium PMFCs benefitted from an increase in maximum credit lines on approved new loan applications in Q4 2018, while Large PNFCs and OFCs did not. Similarly, Small PNFCs and OFCs are expected to benefit from an increase in maximum credit lines on approved new loan applications in Q1 2019, while medium and large PNFCs are not.
“More collateral requirements were demanded from all firm sizes on approved new loan application in Q4 2018. Similarly, lenders will demand for more collateral from all firm sizes in the next quarter.”