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Credit to households increases by 28.6% in Q2 2020 – CBN

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CBN
CBN Governor, Godwin Emefiele

The Central Bank of Nigeria (CBN’s) Credit Conditions Survey Report for Q2 has been released.

The report was released by the CBN on Monday, September 7. In the report, the availability of secured credit to households increased from -36 per cent in the first quarter of 2020 to -7.4 per cent by second quarter of 2020 (Q2).

The credit scoring criteria also has an increase of 3.6% despite being at a fixed level in the last four quarters and is expected to jump to 8.7% by Q3 2020.

According to the survey, the maximum loan to income ratios stood at 2% in Q2 2020, a decline of 0.7 per cent points compared to 2.7 per cent recorded in the previous quarter and is expected to remain unchanged (0%) by Q3 2020.

The report further has it that the borrowers willing to lend with high loan to value ratios grew by 10.6 per cent as against -7.6 per cent recorded in the previous quarter.

It attributed the increase in supply of the secured credit to the “Changing appetite for risk,” with increased market share objectives and tighter wholesale funding conditions outlook as the likely contributory factors.

The report read: “Lenders expect to further tighten the credit scoring criteria but preempt the proportion of approved households’ loan applications in Q3 2020 to increase.

“Maximum Loan to Value (LTV) ratios decreased in Q2 2020 and is expected to remain unchanged in Q3 2020. Lenders were not willing to lend at low LTV ratios (75% or less) in both Q2 and Q3 2020.

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“But were willing to lend at high LTV (more than 75%) in Q2 and Q3 2020. The average credit quality on new secured lending improved in Q2 2020 and is expected to improve further in Q3 2020.”

Secured loan to households 

Lenders reported an increase in the availability of secured credit to households in Q2 2020 relative to the previous quarter.

The Changing appetite for risk and changing liquidity position were major factors responsible for the increase.

The report reads: “Availability of secured credit is expected to increase in Q3 2020 as well, with increased market share objectives and tighter wholesale funding conditions outlook as the likely contributory factors.

“The proportion of loan applications approved in the Q2 2020 decreased, as lenders tightened their credit scoring criteria.

“Lenders expect to further tighten the credit scoring criteria but preempt the proportion of approved households’ loan applications in Q3 2020 to increase.

“Maximum Loan to Value (LTV) ratios decreased in Q2 2020 and is expected to remain unchanged.

“Lenders were not willing to lend at low LTV ratios (75 per cent or less) in both Q2 and Q3 2020.

“However, they were willing to lend at high LTV (more than 75 per cent) in Q2 and Q3 2020. The average credit quality on new secured lending improved in Q2 2020 and is expected to improve further in Q3 2020.

“Lenders reported that the overall spreads on secured lending rates to households relative to MPR narrowed in Q2 2020 and were expected to contract further in Q3 2020. Similarly, spreads for all lending types narrowed in the Q2 2020 and were expected to also narrow in the Q3 2020.

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“Household demand for house purchase loans decreased in Q2 2020 but it is expected to increase in Q3 2020.

“For Q2 2020, households demand for all lending types increased, but in Q3 2020, only prime and other lending to households were expected to increase while buy to let lending would decrease.

“Household demand for consumer loans rose in Q2 2020 and it is expected to rise in Q3 2020. However, demand for mortgage/remortgaging from households fell in Q2 2020 and expected to further decline in Q3 2020.

Secured loan performance, measured by default rates, improved in Q2 2020 but it is expected to decline in Q3 2020. Similarly, bank lenders reported lower loss given default by households in Q2 2020, but they expect higher losses in Q3 2020.

Unsecured loan to households

Availability of unsecured credit provided to households recorded a decline of 8.7 per cent, however, it was an improvement compared to -19.9 per cent recorded in the previous quarter and it is expected to stand at -5.3 per cent in the coming quarter (Q3 2020).

However, the proportion of loan applications approved in the Q2 2020 decreased, as lenders tightened their credit scoring criteria.

The report read: “Lenders expect to loosen the credit scoring criteria in Q3 2020 and anticipate that the proportion of approved loan applications will increase. 

“The proportion of approved credit card loans increased in Q2 2020, though the credit scoring criteria for granting credit card loans was tightened, the proportion of approved overdraft/personal loan applications decreased, as lenders tightened the credit scoring criteria.

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“The overall availability of credit to the Corporate sector increased in Q2 2020, and is expected to rise further in Q3 2020, due to “Changing sector-specific risk.

“The limit on unsecured credit card loan and approved new loan applications decreased in Q2. 2020, and it is expected to decline further in Q3.

“The minimum proportion of credit card balances on approved new loan applications increased in the Q2 but it is expected to decrease in Q3 2020

“Maximum maturities on approved unsecured new loan applications lengthened in Q2 2020 and a similar pattern is expected in Q3 2020.”

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