Nigeria’s Credit Conditions Remained Robust in Q4 on Recovery

Nigeria’s credit conditions remained robust in the fourth quarter (Q4) of 2020, reflecting government and the Central Bank of Nigeria’s (CBN) efforts to add stimulus and stronger demand as the economic recovery continues.

Lenders reported that the availability of secured credit to households increased in Q4 2020 relative to the previous quarter and is expected to increase in the Q1 2021, with changing economic outlook and increased market share objectives being the major factors responsible for the increase in supply of secured credit.

Lenders also reported that the availability of unsecured credit to households increased in Q4 2020, and 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 CBN said in its Q4 2020 credit condition survey for households, small businesses and corporate entities, released this week.

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.

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, according to the report.

Secured loan performance, measured by default rates, worsened in Q4 2020, however it is expected to remain unchanged in Q1 2021. Bank lenders reported low loss given the level of default by households in Q4 2020, and they also expect lower losses in Q1 2021.

The proportion of approved credit card loans increased in Q4 2020, though the credit scoring criteria for granting credit card loans was tightened, while the proportion of approved overdraft/personal loan applications also increased, even as lenders tightened the credit scoring criteria.

The limit on unsecured credit card loan and approved new loan applications increased in Q4 2020 and is expected to increase in Q1 2021, a signal that banks are confident in their risk management processes.

Lenders experienced lower default rates on credit card and overdrafts/personal lending to households in Q4 2020 and expect lower default rates in Q1 2021.

This comes as lenders say demand for unsecured credit card lending from households increased in Q4 2020, and is expected to increase in Q1 2021. Similarly, demand for unsecured overdraft/personal loans from households increased in Q4 2020 and is expected to further increase in Q1 2021.

For corporate loans, lenders reported that the availability of credit increased for all business sizes in Q4 2020, while the same trend is expected in Q1 2021.

All firm sizes benefitted from an increase in maximum credit lines on approved new loan applications in Q4 2020 and are expected to benefit from an increase in maximum credit lines on approved new loan applications in Q1 2021.

Not all the data points were positive though.

The maximum Loan to Value (LTV) ratios remain unchanged in Q4 2020 and is expected to remain same in Q1 2021, as lenders were not willing to lend at low LTV ratios (75% or less) in Q4 2020 and Q1 2021.

The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property.

Demand for corporate lending also decreased for all business sizes except for small businesses and Other Financial Corporations in the review period.

More collateral requirements were demanded from all firm sizes on approved new loan applications in Q4 2020 and lenders expect to demand higher collateral from all firm sizes in the Q1 2021.