Supply of credit to households will increase in Q1 2021 – CBN Survey

Supply of secured and unsecured credits to households to increase in Q1 2021.

By Adeyemi Adebayo

Supply of secured and unsecured credits to households will increase in Q1 2021. This is according to the CBN’s Q4 2020 Credit Conditions Survey Report.

The report indicates that the availability of secured and unsecured credits to households increased in Q4 2020 and is expected to rise further in the first quarter of 2021.

This edition of the survey report, which was conducted in December 2020, presents trends and developments in credit conditions in the fourth quarter, and its expectation in the first quarter of 2021.

The report noted that changing economic outlook and increased market share objectives were major factors responsible for the increase in supply of secured credit. In addition to these factors, improving economic outlook contributed to increased availability of unsecured credit in Q4 2020.

These factors, according to the report, are part of the forces expected to drive increased credit in Q1 2021.

Despite increased availability of secured and unsecured credit in the fourth quarter of 2020, request for secured lending for house purchase decreased in Q4 2020. Lenders, however, expect demand for such lending to increase in Q1 2021.

While lending for purchase of houses decreased, demand for mortgage/remortgaging from households increased in Q4 2020 and is expected to increase in Q1 2021.

The report notes that the proportion of secured loan applications approved decreased. This is understandable, considering that lenders tightened the credit scoring criteria, according to the report.

Further, demand for total unsecured lending from households increased in Q4 2020 and is expected to increase in Q1 2021.

Lenders’ resolve to tighten the credit scoring criterion increased the proportion of approved unsecured loan applications in Q4 2020.

Key highlights from the report

• The overall availability of credit to the corporate sector increased in Q4 2020 and is expected to increase in Q1 2021, due to “Changing sector specific risk and market share objectives”
• Demand decreased for corporate credit for all business sizes except for small businesses and Other Financial Corporations (OFCs) in Q4 2020 but demand for all firm sizes is expected to increase in Q1 2021.
• Secured loan performance, measured by default rates, worsened in Q4 2020, while lenders expect default rates in Q1 2021 to remain unchanged.
• The performance of total unsecured loan to households, measured by default rates, improved in Q4 2020 and is expected to improve further in Q1 2021.
• Corporate loan performance rates worsened for small businesses and medium Public Non-Financial Corporations (PNFCs) but improved for large PNFCs and OFCS in Q4 2020.
• Lenders expect lower default rates on lending to all sized businesses in Q1 2021.
• The overall spread on secured lending rates on approved new loans to households relative to Monetary Policy Rate (MPR) narrowed in Q4 2020 and are expected to remain unchanged Q1 2021.
• The overall spread on unsecured lending narrowed in Q4 2020 and is similarly expected to narrow in Q1 2021.
• Changes in spreads between bank lending rates and MPR on approved new loan applications widened for all firm sizes except medium PNFCs in Q4 2020. It is expected to also widen for all firm sizes except for medium PNFCs in Q1 2021.

What this means

The projected increase in the availability of secured and unsecured credits is an indication that interested households can get the required capital to finance different kinds of relevant projects.

This is good, considering the effects of Covid-19 pandemic on the incomes of households. In this regard, Nairametrics reported on November 15th 2020 that income and consumption of Nigerian households remain unstable due to COVID-19. Nairametrics further reported on the 21st of December 2020 that income remains unstable for many households in Nigeria according to the NLPS survey.

Thus, the availability of these two forms of credits serves as a cushion for mitigating the effects of unstable incomes for households.

What you should know

• The survey is part of CBN’s strategy towards understanding trends and developments in credit conditions, as a way of achieving the mandate of nurturing an efficient monetary and financial system towards promoting macroeconomic stability in Nigeria.
• The survey covers secured and unsecured lending to households, lending to PNFCs, small businesses, and OFCs. The results are based on lenders’ own responses and do not reflect the bank’s views on credit conditions in the economy.
• To determine the 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 changed “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 lenders reporting that demand was lower.
• The net percentage balances are scaled to lie between ±100.