Default on collateralised loans worsened in fourth quarter –CBN

The incidence of default on secured credit aggravated between October and December, with lenders expecting no improvement in the trend in the first quarter of 2021, the Central Bank of Nigeria (CBN) said on Monday.

The industry watchdog also revealed in its Credit Conditions Survey Report Q4 2020 issued Tuesday that the performance rates of corporate loans for small businesses and medium Public Non-Financial Corporations (PNFCs) deteriorated in the period but improved for big PNFCs and as other financial corporations.

Lenders believe default rates will be lower on lending to all sized businesses in Q1 2020.

“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,” the report, which was collated by the CBN statistics unit, stated.

The CBN noted that the availability of secured credit to households rose in Q4 and projected further rise in the quarter ahead.

The improvement in the current quarter was driven by changing economic outlook and increased market objectives.

In the same vein, unsecured loan availability increased in the quarter under review and the trend is expected to improve in Q1 2021, according to the CBN.

Read also: Non-performing loans of Nigerian banks now N1.17tn –NBS

“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,’” the report said.

On the demand side, request for collateralised loan for house purchase fell. Yet, banks are optimistic that demand for this loan category will improve in the next quarter.

The CBN said the size of approved secured loan applications declined, with lenders tightening their credit scoring parameters.

Requests for total unsecured lending from households jumped and are anticipated to increase in Q1 2020.

The decision of lenders to make credit scoring criterion stricter increased the proportion of approved unsecured loan applications.

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