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Banks Demand More Collateral as Loan Defaults Rise

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Recession bites
  • Banks Demand More Collateral as Loan Defaults Rise

Banks are demanding more collateral from firms seeking loans as default rates have worsened, a new report from the Central Bank of Nigeria has revealed.

The Credit Conditions Survey Report for the fourth quarter 2016 said the overall availability of credit to the corporate sector increased in the quarter and was expected to further increase in the first quarter of 2017.

It said the major factors contributing to the increase in credit availability were changing sector specific risk, brighter economic outlook, favourable liquidity conditions and tight wholesale funding conditions.

According to the report, availability of credit increased for the large Private Non-Financial Corporations and other financial corporations in the fourth quarter but decreased for the small businesses and the medium PNFCs, and the same trend is expected in the next quarter.

The report said, “Corporate loan performance worsened across all firm sized business in the current quarter as default rates on lending to small, medium and large PNFCs worsened in the current quarter.

“Lenders demanded more collateral requirements from all firm sizes on approved new loan application in Q4 2016. Similarly, lenders expect to demand for more collateral from all firm sizes in the next quarter.”

The CBN said lenders had mixed opinions on default rates in the next quarter, adding that they were of the opinion that default rates for the medium and large PNFCs would improve, while the default rates for the small businesses and other financial corporations would further deteriorate.

It said tenors on new corporate loans deteriorated in the fourth quarter and were expected to further deteriorate in the next quarter.

The report noted that changes in the spread between bank rates and the Monetary Policy Rate on approved new loan applications to the small, medium, large PNFCs and OFCs widened in Q4 2016.

It said, “Following the widened spread, the proportion of loan applications approved for the small and medium-size firms decreased in the current quarter and was expected to increase and decrease, respectively in the next quarter.”

The report said lenders required lower loan covenants from small businesses and medium PNFCs-sized businesses, and stronger loan covenants from large PNFCs and other financial corporations in the current quarter.

It said, “Fees/commissions on approved new loan applications rose for all firm sized business in the current quarter. Fees/commissions were expected to rise further for all firm sized business in the next quarter.

“All firm sized businesses except the small businesses did not benefit from an increase in maximum credit lines on approved new loan application in Q4 2016. Similarly, lenders expect the small businesses and large PNFCs to benefit, while the medium PNFCs and other financial corporations will not benefit from an increase in maximum credit lines on approved new loan application in Q1 2017.”

The report found that demand for corporate lending from small businesses, medium large PNFCs and other financial corporations increased in Q4 2016, adding that it was expected to increase in the next quarter

Lenders were said to have reported that the demand for overdrafts/personal loans and secured lending from small businesses in the quarter was higher in comparison with other business types.

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

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Aliko Dangote Remains Africa’s Richest Man With $12.1 Billion Net Worth -Forbes

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Aliko Dangote Remains Africa’s Richest Man With $12.1 Billion Net Worth -Forbes

Nigerian industrialist, Aliko Dangote, is Africa’s richest person for the tenth year in a row.

In the Forbes Africa latest billionaires list, Dangote’s total net worth stood at $12.1 billion, a $2 billion increment when compared to last year. Thanks to the 30 percent increase in the price of Dangote Cement share.

Nassef Sawiris of Egypt followed Dangote with $8.5 billion net worth with the majority of his investments coming from construction and other investments.

In third place was Nicky Oppenheimer of South Africa with an $8 billion total net worth.

Mike Adenuga and Abdulsamad Rabio, the two Nigerians, came fifth and sixth with $6.3 billion and $5.5 billion net worth, respectively.Forbes Africa's billionaires list

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Portland Paints, Chemical and Allied Products Plc Agreed to Merge

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Portland Paints

Portland Paints, Chemical and Allied Products Plc Agreed to Merge

Portland Paints and Products Nigeria Plc and Chemical and Allied Products Plc have agreed to merge, according to the latest statement from both companies.

In a statement released through the Nigerian Stock Exchange, the Board of Directors of CAP said we are “pleased to inform you that following discussions and negotiations, the Boards of CAP and Portland Paints have reached an agreement to undertake a merger between both entities (the “Merger” or the “Proposed Merger”).

Accordingly, we “hereby present to you the terms and benefits of the Proposed Merger for your consideration and seek your support and approval to effect the Proposed Merger.

“The Proposed Merger presents a compelling opportunity to create significant value for shareholders of CAP and achieve the company’s strategic growth objectives as a larger company with a broader product portfolio, more corporate owned brands and diversified revenues.

“The resultant entity is also expected to benefit from enhanced distribution capabilities in addition to economies of scale and operational efficiencies.”

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Tony Elumelu Acquires Shell, Total, ENI Stakes in OML 17

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Tony Elumelu Acquires Shell, Total, ENI Stakes in OML 17

Tony Elumelu owned Heir Holdings Limited and its related company Transnational Corporation of Nigeria Plc on Friday announced it has completed the purchase of 45 percent stake in Oil Mining Lease (OML 17) through TNOG Oil and Gas Limited.

The acquisition includes all assets of Shell Petroleum Development Company of Nigeria Limited (30 Percent), Total E&P Nigeria Ltd (10 percent) and ENI (five percent) — in the lease.

It was further stated that TNOG Oil and Gas Limited will also have the sole right to operate OML 17.

The field presently has a production capacity of 27,000 barrels per day. Also, there are estimated 2P reserves (proven and probable) of 1.2 billion barrels and an additional one billion barrels in possible reserves — all of oil equivalent.

A consortium of global and regional banks and investors provided a financing component of $1.1 billion for the largest oil and gas financing in Africa in over a decade.

In a statement released on Friday, Shell said the completion was after all the necessary approvals have were received from authorities.

“A total of $453m was paid at completion with the balance to be paid over an agreed period. SPDC will retain its interest in the Port Harcourt Industrial and Residential Areas, which fall within the lease area,” the SPDC said.

Speaking after the completion of the deal, Elumelu said “We have a very clear vision: creating Africa’s first integrated energy multinational, a global quality business, uniquely focused on Africa and Africa’s energy needs. The acquisition of such a high-quality asset, with significant potential for further growth, is a strong statement of our confidence in Nigeria, the Nigerian oil and gas sector and a tribute to the extremely high-quality management team that we have assembled.

“As a Nigerian, and more particularly an indigene of the Niger Delta region, I understand well our responsibilities that come with stewardship of the asset, our engagement with communities and the strategic importance of the oil and gas sector in Nigeria. We see significant benefits from integrating our production, with our ability to power Nigeria, through Transcorp, and deliver value across the energy value chain.

“I would like to thank Shell, Total and ENI, for the professionalism of the process, the Federal Government of Nigeria, the Ministry of Petroleum Resources, and the NNPC for the confidence they have placed in us.”

Tony Elumelu is the Chairman of Heirs Holdings Limited, Transcorp and United Bank for Africa Plc.

Also, read Transcorp Plc Acquires FGN’s 100% Equity in Afam Power for N105 Billion

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