Credit to households soared in the fourth quarter of 2020 and the Central Bank of Nigeria (CBN) has projected a continued increase in the first quarter of 2021 according to its Fourth Quarter 2020 Credit Conditions Survey Report.
According to the survey that was conducted by the statistics department of the apex bank which covers secured and unsecured lending to households, lending to Public Non-Financial Corporations (PNFCs), small businesses and Other Financial Corporations (OFCs), the projection was based on the fact that availability of secured credit to the same households increased in the last quarter of the outgoing year.
“Lenders reported that the availability of unsecured credit to households increased in Q4 2020, it is expected to increase in Q12021. Most lenders cited improving economic outlook and increased market share objective as contributory factors for the increase”, the apex bank noted in the survey.
Also, 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”.
However, request for secured lending for house purchase decreased in Q4 2020 but lenders expect demand for such lending to increase in Q12021, according to the report.
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.
It was also reported that 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.
Under 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. Also, 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.
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.
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