Banks Raise Commission, Collateral Requirements for Corporate Loans

By Obinna Chima

Commercial banks in the country now demand more collateral from all firm sizes on approved new loan application in the first quarter (Q1) 2018, a report has stated.

Also, the report indicated that lenders will demand for more collateral from all firm sizes in the next quarter.

In the same vein, fees/commissions on approved new loan applications rose for all firm sized businesses in Q1 2018 and has been estimated to remain high in the next quarters.

The Central Bank of Nigeria (CBN) disclosed this in its Credit Conditions Survey Report posted on its website at the weekend.

According to the report, all firms did not benefit from an increase in maximum credit lines on approved new loan applications in Q1 2018, except for small businesses.

Similarly, all firm sizes expected not to benefit from an increase in maximum credit lines on approved new loan applications in Q2 2018, except for large PNFCs.

“Demand for corporate lending from all business sizes increased in the current quarter and were also expected to increase in the next quarter. Demand for overdrafts/personal loans in Q1 2018 was higher in comparison with other loan types.

“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 next quarter,” it added.

Furthermore, the report showed that corporate loan performance as measured by the default rates improved for all sized business in the review quarter.

Lenders also expect lower default rates on lending to all sized businesses in the next quarter.

In addition, the average credit quality on newly arranged PNFCs borrowing facilities improved for both quarters.

Loan tenors on new corporate loans improved in Q1 2018 and were expected to improve further in the next quarter.

But draw down on committed lines by PNFCs worsened in the current quarter and was expected to improve in the next quarter.

In the same vein, households demand for lending for house purchase decreased in Q1 2018, but was expected to increase in the next quarter.

Of the total demand, households demand for prime lending and other lending increased, and these demands were expected to increase in the next quarter.

“Households demand for consumer loans rose in the current quarter and is expected to rise in the next quarter.

Demand for mortgage/re-mortgaging from households rose in Q1 2018 and is expected to rise in Q2 2018.

“Secured loan performance, as measured by default rates, worsened in Q1 2018 but is expected to improve in Q2 2018.

“Similarly, loss given default worsened in the current quarter and it is expected to improve in the next quarter,” it stated.

The availability of unsecured credit provided to households rose in the current quarter and was expected to rise in the next quarter. Lenders reported brighter economic outlook and higher appetite for risk as the major factors that contributed to the increase in Q1 2018, the report showed.

Despite lenders’ resolve to tighten the credit scoring criteria for total unsecured loan applications in the review quarter, it showed that the proportion of approved total loan applications for households increased.

Also, lenders expect to still tighten the credit scoring criteria in the next quarter, but anticipated that the total loans applications to be approved in Q2 2018 will increase.

The proportion of approved credit card loans decreased in Q1 2018 due to lenders’ stance on the credit scoring criteria for granting credit card loans. Similarly, the proportion of approved overdraft/personal loans applications decreased.

Lenders reported that spreads on credit card lending widened in Q1 2018 but were expected to narrow in the next quarter. Spreads on unsecured approved overdrafts/personal loans applications narrowed in the current quarter and was expected to further narrow in the next quarter. Overall spreads on unsecured lending narrowed in the current quarter and was expected to be same in the next quarter.

The limit on unsecured credit cards on approved new loan applications decreased in Q1 2018 but was expected to increase in the next quarter.

The minimum proportion of credit card balances to be paid on approved new loan applications increased in the review quarter and was expected to further increase in the next quarter.

“Maximum maturities on approved unsecured new loan applications were shortened in the current quarter, and lenders anticipated that they will remain shortened in the next quarter.

“Demand for unsecured credit card lending from households increased in Q1 2018 but was expected to decrease in Q2 2018. However, demand for unsecured overdraft/personal loans from households increased in Q1 2018 and was expected to increase in Q2 2018.

“Lenders experienced higher default rates on credit card and overdrafts/personal lending to households in the current quarter. They however, expect improvement in default rates in the next quarter,” it added.