The long-awaited low-interest rate lending by households and corporates is gradually coming to play as fees on secured lending declined to 5.3 points in the fourth quarter (Q4) of 2019 from 10.5 points in the third quarter of the same year.
Secured lending is a process whereby a borrower seeks to obtain a loan from the creditor by pledging some asset as collateral.
Demand for secured lending for consumer loans from households rose to 36.7 points in Q4 2019 from 30.9 points in Q3 2019.
Similarly, demand for mortgage/remortgaging from households rose in Q4 2019 and is expected also to rise in Q1 2020.
The Central Bank of Nigeria (CBN)’s Q4 2019 credit condition survey for households, small businesses and corporate entities indicated increased availability of both secured and secured credit to households, as well as corporates entities. Spreads on overall secured lending to households and all firm sizes narrowed in Q4 2019 and were expected to remain unchanged in Q1 2020.
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Lenders reported that demand for total unsecured lending from households increased in the last quarter of 2019, and is expected to increase in the next quarter. Demand for corporate lending increased across all firm sizes in the review quarter.
The Monetary Policy Committee (MPC), at its last meeting said it was hopeful that the Loan to Deposit Ratio (LDR) initiative must be sustained as interest rates being paid by borrowers have so far dropped by up to 400 basis points between June and October 2019. These have happened with a corresponding decline in Non-Performing Loans (NPLs) to 6.5 per cent at end-October 2019.
The CBN had in June announced a new policy measure, which requires banks to maintain a minimum 60 percent loan to deposit ratio. This the regulator later raised to 65 percent and set December 2019 as deadline for compliance by banks.
In addition to credit to the private sector, which has helped spur growth in Q3 2019, Aishah Ahmad, deputy governor said in her personal statement at the last MPC that the LDR policy created a number of other positive effects. Renewed focus on lending by banks has created competitive pressure, which is driving a reduction in market lending rates, enhancing affordability and creating demand for loans.
“The new credit has been primarily in manufacturing, agriculture and consumer lending which is helping to diversify bank credit portfolios which have hitherto been heavily concentrated in Oil and Gas,” Ahmad said.
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Maximum Loan to Value (LTV) ratios increased in the fourth quarter and was expected to remain unchanged in the next quarter.
Lenders were willing to lend at low LTV ratios (75% or less) in the last quarter of 2019 and next quarter. Similarly, they were willing to lend at high LTV (more than 75%) in both the last and next quarters.
The average credit quality on new secured lending improved in Q4 2019 and was expected to also improve in Q1 2020.
Demand for unsecured credit card lending from households increased in Q4 2019 and is expected to increase in Q1 2020. Similarly, demand for unsecured overdraft/personal loans from households increased in Q4 2019 and is expected to increase in Q1 2020, the report stated.
Lenders experienced lower default rates on credit card and on overdrafts/personal lending to households in the current quarter, and expect similar rates in the next quarter.
Demand for corporate lending increased for all business sizes in the last quarter of 2019, and was expected to increase for all business sizes in the next quarter. The most significant factors that influenced the demand for lending in the review quarter were the increase in inventory finance and capital investment, and they were expected to remain the main drivers in the next quarter.
