CBN: credit to households rises on positive economic outlook

 

The availability of secured credit to households increased in the first quarter and is expected to further rise on positive economic outlook, the Central Bank of Nigeria’s (CBN’s) credit conditions report has shown.

According to the report, most lenders adduce economic outlook  to increased credit availability to the corporate sector.

The report said the demand for secured lending for house purchase decreased; however, more lenders expected the demand for secured lending to increase in the next quarter. It said the proportion of loan applications approved increased, despite lenders’ tightening of credit scoring criteria.

“Demand for total unsecured lending from households increased in the current quarter, but was expected to decrease in this quarter. Due to lenders stance on tightening the credit scoring criteria, the proportion of approved unsecured loan applications decreased in the first quarter, but was expected to increase this quarter,” it said.

Also, secured loan performance, as measured by default rates, worsened in the review quarter. However, lenders expect lower default rates this quarter. Total unsecured loan performance to households, as measured by default rates, deteriorated in first quarter of this year but is expected to improve this quarter.

“Corporate loan performance improved across all sizes of firms in the current quarter, except for small businesses. Lenders generally expect lower default in the current quarter. Lenders reported that the overall spreads on secured lending rates on approved new loans to households relative to Monetary Policy Rate narrowed in first quarter 2018, and was expected to remain narrow in the next quarter,” it said.

The CBN said part of its mandate is to nurture an efficient monetary and financial system to promote macroeconomic stability.

“To achieve this, the bank needs to, among others, understand trends and developments in credit conditions. This quarterly survey of bank lenders is an input to this work. Lenders were asked about trends and developments in credit conditions in the current and next quarters. The survey covers secured and unsecured lending to households, lending to public non-financial corporation’s (PNFCs), small businesses and other nonfinancial corporations (OFCs). This survey serves as an input into the Monetary Policy document, which presents the Bank’s assessment of the latest trends in lending to the  economy,” it said.

It said the results were based on lenders’ responses to the survey, and do not necessarily reflect the bank’s views on credit conditions.

“To calculate 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 change “a little”. These scores are then weighted by lenders’ market shares. The results are analysed by calculating net percentage balances – the difference between the weighted balance of lenders reporting that demand was higher versus lower or terms and conditions were tighter versus loosened. The net percentage balances are scaled to lie between plus or minus 100,” it said.

It said the first quarter of the year, overall credit condition survey for households, small businesses and corporate entities indicated an increase in availability of secured credit to households and corporates, but a decrease in the availability of unsecured credit. Spreads on overall secured and corporate lending to household narrowed in first quarter of this year.

“Lenders reported that demand for total unsecured lending from households decreased in the current quarter, but was expected to increase in the next quarter. Demand for corporate lending increased across all firm sizes in the review quarter,” it said.

Credit: The Nation

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