Lending Conditions Tighten by Nigerian Banks as Loan Defaults Worsen

The banks in Nigeria have however increased the number of loan applications approved for unsecured loans to households

Banks in Nigeria have resolved to further tighten conditions for lending money in the first quarter of next year, as a result of the continued increase in loan defaults by debtor customers.

The country’s apex bank The Central Bank of Nigeria (CBN), made this known in its Credit Conditions Survey report for the fourth quarter, 2020.

The report, among other things, revealed that there were more loan defaults recorded by the banks in the fourth quarter of 2020 (Q4’20), in terms of secured loans to households, small businesses and medium sized enterprises.

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

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The banks in Nigeria have however increased the number of loan applications approved for unsecured loans to households, as well as increased loans to all sizes of businesses in the fourth quarter of 2020.

The report stated: “The proportion of loan applications approved in Q4’20 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 2021.

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“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 2021.

“Corporate loan performance as measured by the default rates worsened for small businesses and medium Public Non-Financial Corporations (PNFC’s) but improved for large (PNFC’s) and Other Financial Corporations (OFC’s) 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.’’

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