CBN Poll: Availability of Secured Credit to Households Increased in Q4 2020

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Tuesday, December 29, 2020 / 06:43 PM / By CBN / Header Image Credit: Corporate Finance Institute


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Executive Summary

Supply of Credit: The availability of secured credit to households increased in Q4 2020 and is expected to increase in the Q1 2021. Changing economic outlook and increased market share objectives were major factors responsible for the increase in supply of secured credit. Lenders reported that the availability of unsecured credit to households increased in Q4 2020, it is expected to increase in Q1 2021. Most lenders cited improving economic outlook and increased market share objective as contributory factors for the increase. The overall availability of credit to the corporate sector increased in Q4 2020 and is expected to increase in Q1 2021, due to "Changing sector specific risk and market share objectives".

 

Demand for Credit: Request for secured lending for house purchase decreased in Q4 2020 but lenders expect demand for such lending to increase in Q1 2021. The proportion of secured loan applications approved decreased as lenders tightened the credit scoring criteria. Demand for total unsecured lending from households increased in Q4 2020 and is expected to increase in the Q1 2021. Lenders' resolve to tighten the credit scoring criterion increased the proportion of approved unsecured loan applications in Q4 2020. Lenders reported decreased demand for corporate credit for all business sizes except for small businesses and OFCs in Q4 2020 but demand for all firm sizes is expected to increase in Q1 2021.

 

Defaults: Secured loan performance, measured by default rates, worsened in Q4 2020, while lenders expect default rates in Q1 2021 to remain unchanged. The performance of total unsecured loan to households, measured by default rates, improved in Q4 2020 and is expected to improve further in Q1 2021. Corporate loan performance rates worsened for small businesses and medium PNFCs but improved for large PNFCs and OFCS in Q4 2020. Lenders expect lower default rates on lending to all sized businesses in Q1 2021.

 

Loan pricing: Lenders reported that the overall spread on secured lending rates on approved new loans to households relative to MPR narrowed in Q4 2020 and are expected to remain unchanged Q1 2021. The overall spread on unsecured lending narrowed in Q4 2020 and is similarly expected to narrow in Q1 2021. Changes in spreads between bank lending rates and MPR on approved new loan applications widened for all firm sizes except medium PNFCs in Q4 2020. It is expected to also widen for all firm sizes except for medium PNFC in Q1 2021.

 

1.0            Introduction

Part of the mandate of the Central Bank of Nigeria (CBN) is to nurture an efficient monetary and financial system towards promoting macroeconomic stability in Nigeria. To achieve this, the Bank needs to, among others, understand trends and developments in credit conditions information which is collected through a quarterly survey of bank lenders. The survey covers secured and unsecured lending to households, lending to Public Non-Financial Corporations (PNFCs), small businesses and Other Financial Corporations (OFCs).

 

This edition of the survey report presents trends and developments in credit conditions in the fourth quarter and its expectation in the first quarter of 2021. The survey was conducted in December 2020, the results are based on lenders' own responses and do not reflect the Bank's views on credit conditions in the economy.

 

To determine the 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 changed "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 lenders reporting than demand was lower. The net percentage balances are scaled to lie between ±100.

 

The Q4 2020 credit condition survey for households, small businesses and corporate entities indicated increased availability of secured, unsecured and corporate entities. Spreads on overall secured lending to households narrowed in Q4 2020 and are expected to further narrow in Q1 2021 except for unsecured and all firm sized lending to household which is expected to widen. Lenders reported that demand for total secured lending decreased while unsecured lending from households increased in Q4 2020. However, they expected both lending to increase in Q1 2021. Demand for corporate lending decreased for all business sizes except for small businesses and OFCs in the review period.


2.0 Secured lending to households

Lenders reported an increase in the availability of secured credit to households in Q4 2020 relative to the previous quarter. Changing economic outlook and increased market share objectives were major factors responsible for the increase. Similarly, availability of secured credit is expected to increase in Q1 2021, changing economic outlook and increased market share objectives as the likely contributory factors (Table 1, Item 6; Figs. 2.1 & 2.2).

 

The proportion of loan applications approved in Q4 2020 decreased, as lenders tightened their credit scoring criteria. Lenders expect to further tighten the credit scoring criteria as they preempt the proportion of approved households' loan applications to increase in Q1 2021 (Table 1, Items 3 & 4).

 

Maximum Loan to Value (LTV) ratios remain unchanged in Q4 2020 and is expected to remain same in Q1 2021 (Table 1, Item 5c). Lenders were not willing to lend at low LTV ratios (75% or less) in Q4 2020 and Q1 2021. However, lenders were willing to lend at high LTV (more than 75%) in Q4 2020 and are willing to lend at high LTV (more than 75%) in Q1 2021 (Table 1, Item 10). The average credit quality on new secured lending improved in Q4 2020 and is expected to improve in Q1 2021 (Table 1, Item 9).

 

Lenders reported that the overall spreads on secured lending rates to households relative to MPR narrowed in Q4 2020 and are expected to remain same in Q1 2021. Similarly, spreads for all lending types narrowed in the Q4 2020 and are expected to narrow in Q1 2021 (Table 1, Item 5a; Fig. 2.7).

 

Household demand for house purchase loans decreased in Q4 2020 but it is expected to increase in Q1 2021. For Q4 2020, households demand for all lending types increased except for buy to let lending, however, all lending types to households are expected to increase in Q1 2021 (Table 1, Item 1a; Figs. 2.3 & 2.4). Household demand for consumer loans increased in Q4 2020 and is expected to increase in Q1 2021. Similarly, demand for mortgage/remortgaging from households increased in Q4 2020 and is expected to also increase in Q1 2021 (Table 1, Items 1b, 1c & 2).

 

Secured loan performance, measured by default rates, worsened in Q4 2020 and is expected to remain unchanged in Q1 2021. Bank lenders reported low loss given default by households in Q4 2020, and they also expect lower losses in Q1 2021 (Table 1, Items 7 & 8; Figs. 2.5 & 2.6).

 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


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