Nigeria: Banks Mull Loosening Household Credit Scoring Criteria - Report

15 January 2020

Lenders expect to loosen their respective credit scoring criteria to shore up the proportion of approved households' loan applications this quarter.

The Central Bank of Nigeria (CBN) disclosed this in its 'Credit Condition Survey Report for the Fourth Quarter of 2019," obtained on Monday.

According to the report, last quarter, relative to the previous quarter, lenders reported an increase in the availability of secured credit to households. It stated that improving liquidity positions and increased market share objectives were major factors behind the increase.

Also, the report stated that availability of secured credit was expected to increase this quarter, with increased market share objectives and improving liquidity positions as the likely contributory factors.

It revealed that the proportion of loan applications approved last quarter increased, even though lenders left their credit scoring criteria unchanged in the period under review.

"Maximum Loan to Value (LTV) ratios increased in the current quarter and was expected to remain unchanged in the next quarter. Lenders were willing to lend at low LTV ratios (75% or less) in the current and next quarters.

"Similarly, they were willing to lend at high LTV (more than 75%) in both the current and next quarters (Table 1, Item 10). The average credit quality on new secured lending improved in Q4 2019 and was expected to also improve in Q1 2020.

"Lenders reported that the overall spreads on secured lending rates to households relative to Monetary Policy Rate (MPR), narrowed in Q4 2019, but were expected to remain unchanged in the next quarter. Spreads for all lending types narrowed in the current quarter but were expected to remain unchanged in the next quarter," the report explained.

According to the report, households' demand for lending for house purchase increased in Q4 2019 and was expected to increase this quarter.

For last quarter, it showed that households demand for all lending increased and was expected to increase this quarter.

Furthermore, it stated that households' demand for consumer loans rose last quarter and was expected to rise this quarter. Similarly, demand for mortgage/remortgaging from households rose in Q4 2019 and was expected to rise in Q1 2020.

"Secured loan performance, as measured by default rates, improved in Q4 2019 and is expected to improve in Q1 2020. Similarly, bank lenders reported lower losses given default by households in the current quarter and expect lower losses in the next quarters.

"The availability of unsecured credit provided to households increased in the current quarter and is expected to increase in the next quarter, with improvement in market share objectives and higher appetite for risk as factors responsible for the increase.

"In spite of lenders' resolve to leave the credit scoring criterion for total unsecured loan applications unchanged in the review quarter, the proportion of approved total loan applications for households increased. Lenders expect to tighten the credit scoring criteria in the next quarter but anticipate that the proportion of approved loan applications in Q1 2020 will increase.

"The proportion of approved credit card loans increased in Q4 2019, though the credit scoring criteria for granting credit card loans remained unchanged. Similarly, the proportion of approved overdraft/personal loans applications increased, as lenders loosened the credit scoring criteria.

"Lenders reported that spreads on credit card lending, unsecured approved overdrafts/personal loans applications and overall unsecured lending widened in the current quarter, and are expected to widen in the next quarter.

"The limit on unsecured credit cards on approved new loan applications increased in Q4 2019 and was expected to be increased in the next quarter. However, the minimum proportion of credit card balances to be paid on approved new loan applications remained unchanged in the review quarter and was expected to remain unchanged in the next quarter," it stated.

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