CBN projects rise in availability of credit to corporate sector in Q4

The Central Bank of Nigeria (CBN) in a new survey projected an increase in the overall availability of credit to the corporate sector in the fourth quarter of 2019, against decline figure recorded in the third quarter (Q3) 2019.

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The ‘Credit Conditions Survey Report’ by the apex bank noted that the decline was largely driven by pressure from the capital market.

According to the CBN survey, the lenders reported that the prevailing commercial property prices negatively influenced credit availability of the commercial real estate sector in the current quarter.

Similarly, the report stated that the prevailing commercial property prices negatively influence secured lending to PNFCs in the current quarter.

“Availability of credit increased for all business sizes in Q3 2019. Lenders expect the same trend in the next quarter.

“Spreads between bank rates and Monetary Policy Rate (MPR) on the approved new loan applications widened for small business and Other Financial Corporations (OFCs), narrowed for medium Public Non-Financial Corporations (PNFCs) and remained unchanged for large PNFCs in Q3 2019, but were expected to widen for all business sizes in Q4 2019.

“The proportion of loan applications approved for all business sizes increased in the current quarter, and were expected to further increase in Q4 2019.”

The survey by CBN disclosed that lenders required stronger loan covenants from all firm sized businesses, except for small businesses, in the current quarter.

The report stated that lenders, however, reported that they would require stronger loan covenants for all firm sized businesses in the next quarter. For the current quarter, fees/commissions on approved new loan applications fell for small businesses and medium PNFCs but rose for large PNFCs and OFCs. However, lenders expect fees/commissions on approved new loan applications to rise for all firm sized businesses except for large PNFCs in Q4 2019.

“Small businesses and medium PNFCs benefitted from an increase in maximum credit lines on approved new loan applications in Q3 2019, but large PNFCs and OFCs did not.

“Similarly, Small businesses and medium PNFCs are expected to benefit from an increase in maximum credit lines on approved new loan applications in Q4 2019, but large PNFCs and OFCs are not

“More collateral requirements were demanded from all firm sizes on an approved new loan application in Q3 2019 and lenders expect to demand for more collateral from all firm sizes in the next quarter

“Demand for corporate lending increased for all business sizes in the current quarter, and was expected to increase for all business sizes in the next quarter.

The most significant factors that influenced the demand for lending in the review quarter were the increase in inventory finance and capital investment, and they were expected to remain the main drivers in the next quarter.

“Corporate loan performance as measured by the default rates improved for all businesses in Q3 2019. Lenders still expect lower default rates on lending to all sized businesses in the next quarter.

“The average credit quality on newly arranged PNFCs borrowing facilities improved for both quarters.

“The target hold levels associated with corporate lending improved in the current quarter and are expected to improve further in Q4 2019. Loan tenors on new corporate loans improved in Q3 2019 and are expected to improve further in the next quarter.

“Drawdown on committed lines by PNFCs improved in the current quarter, and is expected to improve in the next quarter.