Demand for Secured Lending for House Purchase Increased in Q2 2018

Proshare

Friday, June 22, 2018 1:15 PM / CBN

 

Executive Summary 

Supply: The availability of secured credit to households increased in Q2 2018 and was expected to increase in the next quarter. Increased liquidity position was the major factor for the increase in secured credit. 

Lenders reported that the availability of unsecured credit to households increased in Q2 2018, and this is also expected in Q3 2018. Most lenders adduced higher risk appetite for this increase.

The overall availability of credit to the corporate sector increased in Q2 2018 and was expected to increase in the next quarter. Changing sector-specific risks was the major factor contributing to the increase. 

Demand: Demand for secured lending for house purchase increased in Q2 2018, and more lenders expect demand for secured lending to increase in the next quarter. The proportion of loan applications approved increased even though lenders maintained the same credit scoring criteria.

Demand for total unsecured lending from households increased in the current quarter, and was expected to increase in the next quarter. 

Due to lenders stance on the credit scoring criteria, the proportion of approved unsecured loan applications increased in the current quarter, and was expected to increase in the next quarter.

Lenders reported increased demand for corporate credit across all firm sizes in Q2 2018. They also expect increased demand across all firm sizes in the next quarter. 

Defaults: Secured loan performance, as measured by default rates, improved in the review quarter, and lenders expect lower default rates in the next quarter.

Total unsecured loan performance to households, as measured by default rates, deteriorated in Q2 2018 but is expected to improve in the next quarter. 

Corporate loan performance improved across all sizes of firm in the current quarter. Lenders generally expect lower default in the next quarter. 

Loan pricing: Lenders reported that the overall spreads on secured lending rates on approved new loans to households relative to MPR remained unchanged in Q2 2018, and was expected to remain narrow in the next quarter. 

The spreads on overall unsecured lending remained unchanged in Q2 2018 but were expected to narrow in the next quarter.

Changes in spreads between bank rates and MPR on approved new loan applications to all firm sizes widened in Q2 2018, and was expected to widen for all firm sizes in the next quarter. 

1.0  Introduction 

Part of the Central Bank of Nigeria’s (CBN) mandate is to nurture an efficient monetary and financial system in order to promote macroeconomic stability in Nigeria. To achieve this, the Bank needs to, among others, understand trends and developments in credit conditions. This quarterly survey of bank lenders is an input to this work. 

Lenders were asked about trends and developments in credit conditions in the current and next quarters. The survey covers secured and unsecured lending to households, lending to public non-financial corporations (PNFCs), small businesses and other nonfinancial corporations (OFCs). This survey serves as an input into the Monetary Policy document, which presents the Bank’s assessment of the latest trends in lending to the Nigerian economy. 

This report presents the results of the Q2 2018, survey which was conducted from May 21 to 25, 2018. The results are based on lenders’ own responses to the survey, and do not necessarily reflect the Bank’s views on credit conditions. To calculate aggregate results, each lender is assigned a score based on their response. Lenders who report that credit conditions have changed ”a lot” are assigned twice the score of those who report that conditions have change “a little”. 

These scores are then weighted by lenders’ market shares. The results are analyzed by calculating net percentage balances — the difference between the weighted balance of lenders reporting that demand was higher versus lower or terms and conditions were tighter versus loosened. The net percentage balances are scaled to lie between ±100. 

The Q2 2018 credit condition survey for households, small businesses and corporate entities indicated an increase in availability of secured and unsecured credit to households and corporates entities. Spreads on overall secured lending to household remained unchanged in Q2 2018, while they widened for secured lending to corporates. Lenders reported that demand for total unsecured lending from households increased in the current quarter, and was expected to increase in the next quarter. Demand for corporate lending increased across all firm sizes in the review quarter. 

2.0           Secured lending to households 

In the current quarter relative to the previous quarter, lenders reported an increase in the availability of secured credit to households. They noted that improved liquidity position and market share objectives were major factors behind the increase. Availability of secured credit was expected to increase in the next quarter, with favorable economic outlook and market share objectives as the likely contributory factors (Figs. 2.1 and 2.2). 

Although lenders maintained the same credit scoring criteria in Q2 2018, the proportion of loan applications approved in the quarter increased. Lenders expect to leave unchanged the credit scoring criteria in the next quarter, yet still expect an increase in the proportion of approved households’ loan applications in Q3 2018.

Maximum Loan to Value (LTV) ratios remained unchanged in the current quarter and were expected to also increase in the next quarter. Lenders were willing to lend at low LTV ratios (75% or less) in the current and next quarters. However, they expressed willingness to lend at high LTV (more than 75%) in the current and the next quarters. The average credit quality on new secured lending improved in Q2 2018 and was expected to improve in Q3 2018. 

Lenders reported that the overall spreads on secured lending rates to households relative to MPR remained unchanged in Q2 2018 but was expected to narrow in the next quarter. Unchanged spreads were reported for all lending types in the current quarter. However, respondents expect widened spreads for buy to let lending, and narrowed spreads for prime and other lending in the next quarter (Fig. 2.7). 

Households demand for lending for house purchase increased in Q2 2018 and was expected to increase in the next quarter. Households demand for all lending types increased in the current quarter, and were expected to increase in the next quarter (Figs. 2.3 and 2.4). 

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 Q2 2018 but is expected to rise in Q3 2018.

Secured loan performance, as measured by default rates, improved in Q2 2018 and is expected to improve in Q3 2018. Similarly, loss given default improved in the current quarter and it is expected to improve in the next quarter (Figs. 2.5 and 2.6).

 Proshare Nigeria Pvt. Ltd. 

 

3.0           Unsecured lending to households 

The availability of unsecured credit provided to households rose in the current quarter and was expected to rise in the next quarter. Lenders reported higher appetite for risk and increased availability of funds as the major factors that contributed to the increase in Q2 2018 (Figs. 3.1 and 3.2). 

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 tighten the credit scoring criteria in the next quarter, but anticipate that the total loans applications to be approved in Q3 2018 will increase. 

The proportion of approved credit card loans remained unchanged in Q2 2018 due to lenders’ stance on the credit scoring criteria for granting credit card loans. However, the proportion of approved overdraft/personal loans applications increased. 

Lenders reported that spreads on credit card lending widened in Q2 2018 but were expected to remain unchanged in the next quarter. Spreads on unsecured approved overdrafts/personal loans applications remained unchanged in the current quarter and was expected to remain unchanged in the next quarter. Overall spreads on unsecured lending remained unchanged in the current quarter, and was expected to be same in the next quarter (Fig. 3.7) 

The limit on unsecured credit cards on approved new loan applications remained unchanged in Q2 2018 but was expected to decrease in the next quarter. The minimum proportion of credit card balances to be paid on approved new loan applications increased in the review quarter, and was expected to further increase in the next quarter. 

Maximum maturities on approved unsecured new loan applications lengthened in the current quarter, but lenders anticipated that they will shorten in the next quarter.

Demand for unsecured credit card lending from households increased in Q2 2018 and was expected to increase in Q3 2018. Similarly, demand for unsecured overdraft/personal loans from households increased in Q2 2018 and was expected to increase in Q3 2018 (Figs. 3.3 and 3.4). 

Lenders experienced higher default rates on credit card, but lower default rates on overdrafts/personal lending to households in the current quarter. They however, expect improvement in default rates in the next quarter. Losses given default on total unsecured loans to households improved in Q2 2018 and were expected to improve in the next quarter (Figs. 3.5 and 3.6).

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4.0           Lending to corporates and small businesses 

Credit conditions in the corporate sector vary by size of the business. The survey asked lenders to report developments in the corporate sector by large and medium-size PNFCs, OFCs and small businesses1. 

The overall availability of credit to the corporate sector increased in Q2 2018 and was expected to increase in Q3 2018. This was driven by changing sector-specific risks, favourable economic conditions, 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. Similarly, lenders expect the prevailing commercial property prices to negatively influence secured lending to PNFCs in the current quarter.

Availability of credit increased for all business sizes in Q2 2018. Lenders expect the same trend in the next quarter (Fig. 4.1).

 Changes in spreads between bank rates and MPR on approved new loan applications for all business sizes widened in Q2 2018, and were expected to widen for all business sizes except for small businesses in Q3 2018 (Figs. 4.7 and 4.8).

The proportion of loan applications approved for all business sizes increased in the current quarter, and are expected to further increase in Q3 2018. 

Lenders required stronger loan covenants from all firm sized businesses in the current and next quarters. Fees/commissions on approved new loan applications fell for all firm sized businesses except the large PNFCs in the current quarter, but are expected to rise for small business and medium PNFCs and fall for large PNFCs and OFCs for the next quarter.

All firm sizes benefitted from an increase in maximum credit lines on approved new loan applications in Q2 2018. Similarly, all firm sizes expected benefitted from an increase in maximum credit lines on approved new loan applications in Q3 2018.

More collateral requirements were demanded from all firm sizes on approved new loan application in Q2 2018. Similarly, lenders will demand for more collateral from all firm sizes in the next quarter. 

Demand for corporate lending from all business sizes increased in the current quarter, except for OFCs, and was expected to increase for all business sizes in the next quarter. Demand for overdrafts/personal loans in Q2 2018 was higher in comparison with other loan types. The most significant factors that influenced 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 (Figs. 4.2 and 4.3). 

Corporate loan performance as measured by the default rates improved for all sized business in the review quarter. Lenders also expect lower default rates on lending to all sized businesses in the next quarter (Figs. 4.5 and 4.6). 

The average credit quality on newly arranged PNFCs borrowing facilities improved for both quarters. The target hold levels2 associated with corporate lending improved in the current quarter and was expected to improve further in Q3 2018. Loan tenors on new corporate loans improved in Q2 2018 and were expected to improve further in the next quarter. Draw down on committed lines by PNFCs improved in the current quarter, and is expected to improve in the next quarter.

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.       

              

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