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Market Digest Nigeria

Economy

Credit to households increases in Q2 2020 – CBN

The availability of secured credit to households increased from -36% in the first quarter of 2020 to -7.4% by second quarter of 2020 (Q2).

This was disclosed in the Central Bank of Nigeria’s Credit Conditions Survey Report for Q2that was released on Monday.

In the same vein, Credit scoring criteria recorded 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 report, the maximum loan to income ratios stood at 2% in Q2 2020, a decline of 0.7% points compared to 2.7% recorded in the previous quarter and is expected to remain unchanged (0%) by Q3 2020.

Also, Borrowers willing to lend with high loan to value ratios grew by 10.6% as against -7.6% 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.

It stated, “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.

“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.”

Availability of unsecured credit provided to households recorded a decline of 8.7%, however, it was an improvement compared to -19.9% recorded in the previous quarter and it is expected to stand at -5.3% 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.

It stated, “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.”

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.”

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