‘How credit to corporate sector increased in Q2 2020’

manufacturing

By Motolani Oseni

Credit to the corporate sector increased in the second quarter (Q2) 2020 and is expected to increase further in the third quarter (Q3) of 2020, the Central Bank of Nigeria (CBN) Credit Survey has revealed.

The CBN in its latest “Credit Conditions Survey Report,” said the increase was driven by changing sector-specific risks, changing economic conditions, changing appetite for risk, tight wholesale funding condition and market share objectives.

The survey indicated that lenders reported that the prevailing commercial property prices positively influenced credit availability for the commercial real estate sector in Q2 2020 and would continue in Q3 2020.

According to the report, the prevailing commercial property prices is expected to positively influence secured lending to Public Non-Financial Corporations (PNFCs) in Q2 and Q3 2020.

The survey stated that, “Availability of credit increased for all business sizes in Q2 2020, while the same trend is expected in Q3 2020.

“Spreads between bank lending rates and MPR on approved new loan applications narrowed for all firm sizes except small-sized businesses in Q2 2020.

Similarly, spread on rates for all business sizes in Q3 2020 was expected to narrow.” The survey by CBN disclosed that lenders reported an increase in the availability of secured credit to households in Q2 2020 relative to the previous quarter.

The survey explained further that, “The Changing appetite for risk and changing liquidity position were major factors responsible for the increase.

“Availability of secured credit is expected to increase in Q3 2020 as well, with increased market share objectives and tighter wholesale funding conditions outlook as the likely contributory factors.

“The proportion of loan applications approved in the Q2 2020 decreased, as lenders tightened their credit scoring criteria.

“Lenders expect to further tighten the credit scoring criteria but preempt the proportion of approved households’ loan applications in Q3 2020 to increase “Maximum Loan to Value (LTV) ratios decreased in Q2 2020 and is expected to remain unchanged in Q3 2020.

“Lenders were not willing to lend at low LTV ratios (75per cent or less) in both Q2 and Q3 2020. However, they were willing to lend at high LTV (more than 75 per cent) in Q2 and Q3 2020.

“The average credit quality on new secured lending improved in Q2 2020 and is expected to improve further in Q3 2020 “Lenders reported that the overall spreads on secured lending rates to households relative to MPR narrowed in Q2 2020 and were expected to contract further in Q3 2020.

“Similarly, spreads for all lending types narrowed in the Q2 2020 and were expected to also narrow in the Q3 2020.

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“Household demand for house purchase loans decreased in Q2 2020 but it is expected to increase in Q3 2020.

For Q2 2020, households demand for all lending types increased, but in Q3 2020, only prime and other lendings to households were expected to increase while buy to let lending would decrease.

“Household demand for consumer loans rose in Q2 2020 and it is expected to rise in Q3 2020. However, demand for mortgage/ remortgaging from households fell in Q2 2020 and expected to further decline in Q3 2020.”

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