CBN predicts rise in Corporate Sector Lending in Second Quarter

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Godwin Emefiele
Godwin Emefiele

Central Bank of Nigeria says availability of unsecured credit provided to households rose in first quarter but is expected to fall in the second quarter

By Anayo Ezugwu

THE Central Bank of Nigeria, CBN, is optimistic that lending to the corporate sector would continue to increase in the second quarter of 2019. This is because the overall availability of credit to the corporate sector increased in first quarter of the year and is expected to increase in the second quarter.

In its Credit Conditions Survey report published on its website, CBN said the increase in lending to corporate sector was driven by market share objectives, favourable economic conditions, market pressures from capital markets, changing appetite for risk and changing sector-specific risks. It stated that lenders reported that the prevailing commercial property prices negatively influenced credit availability of the commercial real estate sector in the current quarter.

However, the lenders, according to the report, expect the prevailing commercial property prices to positively influence secured lending to public non-financial corporation sectors, PNFC, in the current quarter. “Availability of credit increased for all business sizes in first quarter of 2019. Lenders expect the same trend in the next quarter.

“Spreads between bank rates and MPR on approved new loan applications narrowed for all business in first quarter, but were expected to widen for all business sizes in second quarter. The proportion of loan applications approved for all business sizes increased in the current quarter, and are expected to further increase in second quarter.

“Lenders required stronger loan covenants from all firm sized businesses in first quarter of 2019. 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 first quarter, fees/commissions on approved new loan applications fell for all firm sized businesses except for small business; while for second quarter lenders expect fees/commissions on approved new loan applications to fall for all firm sized businesses except for other financial corporation, OFCs.”

The report stated that all firm sized businesses benefitted from an increase in maximum credit lines on approved new loan applications in first quarter, except for OFCs. Similarly, it noted that all firm sized businesses are expected to benefit from an increase in maximum credit lines on approved new loan applications in second quarter.

“More collateral requirements were demanded from all firm sizes on approved new loan application in first quarter. Similarly, lenders will demand for more collateral from all firm sizes in the next quarter. Demand for corporate lending increased for all business sizes in the first quarter, and was expected to increase for all business sizes in the second quarter.

“The most significant factors that influenced demand for lending in the review quarter were the increase in inventory finance and capital investment, and they were expected to remain the main drivers in the second quarter. Corporate loan performance as measured by the default rates improved for small businesses and large PNFCs.

“Lenders still expect lower default rates on lending to all sized businesses in the second quarter. The average credit quality on newly arranged PNFCs borrowing facilities improved for both quarters. The target hold levels two associated with corporate lending improved in the current quarter and were expected to improve further in second quarter of 2019.

“Loan tenors on new corporate loans improved in first quarter of 2019 and were expected to improve further in the next quarter. Draw down on committed lines by PNFCs improved in the current quarter, and is expected to improve in the next quarter.”

The report also showed that demand for total unsecured lending from households increased in the first quarter of 2019 and was expected to increase this quarter as the availability of secured credit to households increase. It stated that the availability of secured credit to households was expected to increase this quarter, based on the improving economic outlook.

It noted that banks had reported that availability of unsecured credit to households increased in first quarter, but it was expected to contract in second quarter, as most lenders adduced higher appetite for risk for this increase. “The availability of unsecured credit provided to households rose in first quarter but is expected to fall in the next quarter.

“Lenders reported higher appetite for risk and market share objectives as the major factors that contributed to the increase in first quarter. Despite lenders’ resolve to leave the credit scoring criteria for unsecured loan applications unchanged, the proportion of approved loan applications for households decreased in first quarter.

“Lenders expect to leave unchanged the credit scoring criteria in  second quarter, but anticipate an increase in the total loan applications to be approved in second quarter. The proportion of approved credit card loans decreased in first quarter despite lenders’ stance on the credit scoring criteria for granting credit card loans. Similarly, the proportion of approved overdraft/personal loans applications decreased.”

– Apr. 12, 2019 @ 17:45 GMT |

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