Banks record higher default rates on credit card, overdraft in Q4

Lenders experienced higher default rates on credit card and on overdrafts/personal lending to households in the fourth quarter of 2018.

The Central Bank of Nigeria (CBN) on Monday, released its Credit Condition Survey report conducted from November 19 to 23, 2018.

The Q4 2018 credit condition survey for households, small businesses and corporate entities indicated an increase in availability of secured credit to households and corporates entities, and increased availability of unsecured credit to households.

The banks however, expect improvement in default rates in the next quarter for all loan types. Losses given default on total unsecured loans to households improved in Q4 2018 and were expected to improve in the next quarter.

According to the the overall availability of credit to the corporate sector increased in Q4 2018 and was expected to increase in Q1 2019. This was driven by favourable economic conditions, changing sector specific risks, improved liquidity conditions, market share objectives and changing appetite for risk. Lenders reported that the prevailing commercial property prices negatively influenced credit availability of the commercial real estate sector in the current quarter. However, lenders expect the prevailing commercial property prices to positively influence secured lending to Public Non-Financial Corporations (PNFCs) in the current quarter.

Availability of credit increased for all business sizes in Q4 2018. Lenders expect the same trend in the next quarter. Spreads between bank rates and MPR on approved new loan applications widened for all business sizes except for loans to other nonfinancial corporations (OFCs) in Q4 2018, but were expected to widen for all business sizes in Q1 2019.

The proportion of loan applications approved for all business sizes increased in the current quarter, and are expected to further increase in Q1 2019.

Lenders required stronger loan covenants from all firm sized businesses in the current quarter. However, they reported that they would require stronger loan covenants for all firm sized businesses except for small business, which they plan to leave unchanged, in the next quarter.

For the current quarter, fees/commissions on approved new loan applications fell for medium PNFCs and OFCs, and rose for small and large businesses; while for Q1 2019 lenders expect fees/commissions on approved new loan applications to fall for medium PNFCs, remain unchanged for small and large PNFCs, and rise for OFCs.

Small and medium PNFCs benefitted from an increase in maximum credit lines on approved new loan applications in Q4 2018, while Large PNFCs and OFCs did not. Similarly, Small PNFCs and OFCs are expected to benefit from an increase in maximum credit lines on approved new loan applications in Q1 2019, while medium and large PNFCs are not.

More collateral requirements were demanded from all firm sizes on approved new loan application in Q4 2018. Similarly, lenders will demand for more collateral from all firm sizes in the next quarter.

HOPE MOSES-ASHIKE