Banks tighten lending conditions as loan defaults worsen

Banks have resolved to further tighten lending conditions in the first quarter of next year (Q1’21) following continued increase in loan defaults by debtor customers.

The Central Bank of Nigeria (CBN) stated this in its Credit Conditions Survey report for the fourth quarter, 2020 (Q4’20).

The report, among other things, revealed that banks in Q4’20 recorded more loan defaults in terms of secured loans to households, small businesses and medium sized enterprises.

Consequently, according to the report, the banks have reduced the number of secured loan approvals to households.

The banks, however, increased the number of loan applications approved for unsecured loans to households, and loans to all business sizes in Q4’20.

The report stated: “The proportion of loan applications approved in Q4 2020 decreased, as lenders tightened their credit scoring criteria. Lenders expect to further tighten the credit scoring criteria as they pre-empt the proportion of approved households’ loan applications to increase in Q1 2021

“Secured loan performance, measured by default rates, worsened in Q4’20 and is expected to remain unchanged in Q1’21. Bank lenders reported low loss given default by households in Q4 2020, and they also expect lower losses in Q1 202.

“Lenders experienced lower default rates on credit card and overdrafts/personal lending to households in Q4 2020 and expect lower default rates in Q1 2021.

“Losses given default on overdraft/personal loans to households and losses given on total unsecured loans to households declined in Q4 2020. Similarly, default on total unsecured loans to households and overdraft/personal loans to households is expected to lower in Q1 202.

“Corporate loan performance as measured by the default rates worsened for small businesses and medium PNFCs but improved for large Public Non-Financial Corporations (PNFCs) and Other Financial Corporations (OFCS) in Q4 2020. However, lenders expect lower default rates on lending to all sized businesses in Q1’21.

“More collateral requirements were demanded from all firm sizes on approved new loan applications in Q4 2020 and lenders expect to demand higher collateral from all firm sizes in Q1 ’21.’’