Secured credit to household looks brighter next quarter

Availability of secured credit to households in Nigeria increased in fourth-quarter 2015 and is expected to increase further in the first-quarter 2016, buoyed by the changing economic outlook, the Central Bank of Nigeria (CBN)’s credit conditions survey conducted in October has revealed.

As part of its mission to maintain monetary and financial stability, the CBN needs to understand trends and developments in credit conditions. The quarterly survey of bank lenders is an input to the apex bank’s work.

Lenders were asked about trends and developments in credit conditions in the previous and next quarters. The survey covers secured and unsecured lending to households and lending to non-financial corporations, small businesses and non-bank financial firms. Along with various data sources and discussions between the major lenders and bank staff, the survey serves as an input into the Monetary Policy documents which present the CBN assessment of the latest trends in lending to the Nigerian economy.

The report indicated that the overall availability of credit to the corporate sector increased in Q4 2015 and was expected to increase further in Q1 2016. The major factors contributing to increased credit availability were changing economic outlook, changing sector-specific risk, changing appetite for risk and changing liquidity conditions.

However, demand for secured lending for house purchase decreased in Q4 2015 and was expected to decrease further in Q1 2016. Despite lenders’ stance in loosening the credit scoring criteria in the current quarter, the proportion of loan applications approved in Q4 2015 decreased.

On the other hand, demand for unsecured credit card lending and overdraft/personal loan from households increased in the current quarter, and was expected to further increase in the next quarter due to the tightening in the credit scoring criteria. The proportion of approved households total loan applications decreased in the current quarter and was also expected to decrease in the next quarter.

Lenders reported increased demand for corporate credit across all firm sizes except the small businesses in Q4 2015 and similar trend was expected to increase in the next quarter. Following the wide spread between bank rates on all firm size businesses and MPR, the proportion of loan applications approved for small businesses, medium and large PNFCs decreased in Q4 2015.

Secured loan performance, as measured by default rates, improved in the review quarter. This improvement could be adduced to the payment of workers’ outstanding salaries in some states of the federation as a result of the salary bailout. Similarly, lenders expect improved performance in the next quarter as default rates were expected to fall further.

Also, unsecured loan performance on credit card loans and overdraft/personal loans to households, as measured by default rates, improved in Q4 2015 and were expected to improve further in the next quarter.

HOPE MOSES-ASHIKE