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Banks Tighten Terms for Credit Cards

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  • Banks Tighten Terms for Credit Cards

The second quarter credit condition survey has revealed that lenders tightened their credit scoring criteria for granting credit card loan applications in the second quarter of 2017, as part of risk management measures.

Owing to this, the proportion of approved credit card applications decreased.

But the survey of households, small businesses and corporate entities indicated increases in the availability of secured, unsecured and corporate credit to the aforementioned segments respectively.

According to the Central Bank of Nigeria’s Credit Conditions Survey Report for second quarter (Q2) 2017, lenders resolved to tighten the credit scoring criteria in granting overdraft/personal loan applications in the current quarter and decreased the proportion of approved household’s overdraft/personal loan applications in the current quarter.

Therefore, due to lenders’ resolve to tighten the credit scoring criteria for total unsecured loan applications in Q2, 2017, the proportion of approved total loan applications for households decreased in the quarter.

Lenders were expected to further tighten the credit scoring criteria in the next quarter, and were still of the opinion that the total loans applications to be approved in Q3, 2017 will further decrease.

“Lenders tightened the credit scoring criteria for granting credit card loan applications and the proportion of approved credit card applications to decreased in Q2, 2017.

“Lenders resolve to tighten the credit scoring criteria in granting overdraft/personal loan applications in the current quarter, decreased the proportion of approved household’s overdraft/personal loan applications in the current quarter.

“Lenders reported that spreads on credit card lending widened in Q2, 2017, but was expected to narrow in the next quarter. Spreads on unsecured overdrafts/personal loans on approved new loan applications widened in the current quarter and was expected to remain widened in the next quarter.

“The limit on unsecured credit cards on approved new loan applications decreased in Q2, 2017 and was expected to decrease further in the next quarter.

“The minimum proportion of credit card balances to be paid on approved new loan applications increased in the review quarter, and was expected to further increase in the next quarter.

“Maximum maturities on approved unsecured new loan applications were shortened in the current quarter, but were lengthened in the next quarter,” the report explained.

But demand for unsecured credit card lending from households increased in Q2, 2017 and was expected to increase in Q3, 2017 (Question 1a). Similarly, demand for unsecured overdraft/personal loans from households increased in Q2, 2017 and was expected to increase further in Q3, 2017.

Lenders experienced higher default rates on credit card and overdrafts/personal lending to households in the current quarter. They however, expect improvement in default rates in the next quarters. Losses given default on total unsecured loans to households improved in Q2, 2017 and were expected to improve further in Q3, 2017.

Credit for Corporates

The credit conditions in the corporate sector vary by size of the business. The survey asked lenders to report developments in the corporate sector by large and medium-size private non-financial corporations (PNFCs), other financial corporations (OFCs) and small businesses.

The overall availability of credit to the corporate sector increased in Q2, 2017 and was expected to further increase in Q3, 2017.

The report stated that the major factors contributing to the increase in credit availability were brighter economic outlook, favourable liquidity conditions, tight wholesale funding conditions, changing sector specific risk and increased appetite for risk.

Lenders reported that the prevailing commercial property prices negatively influenced credit availability of the commercial real estate sector in the current and next quarters.

Similarly, lenders expected the prevailing commercial property prices to negatively influence secured lending to PNFCs in the current and next quarters.

Small businesses were defined as those with an annual turnover of under N5 million. Medium-size corporates were defined as those with an annual turnover of between N5 million and N100 million, while large corporates were defined as those with an annual turnover of more than N100 million.

“Availability of credit increased for all sized business except the OFCs in Q2, 2017. Similarly lenders report credit availability for all sized businesses, except the large PNFCs and OFCs in the next quarter.

“Changes in spreads between bank rates and MPR on approved new loan applications to the small, medium, large PNFCs and OFCs widened in Q2, 2017. Conversely, spreads for all size business types is expected to narrow in the next quarter except for medium PNFCs.

“The proportion of loan applications approved for the medium and large size firms decreased in the current quarter and were expected to decrease further in the next quarter.

“Lenders required stronger loan covenants from all sized businesses in the current and next quarter,” it added.

Furthermore, the report showed that fees/commissions on approved new loan applications fell for all firm sized businesses in both the current and next quarters.

It also showed that all firm sized businesses except the small businesses did not benefit from an increase in maximum credit lines on approved new loan application in Q2, 2017. “Similarly, lenders expect that the small businesses and OFCs will benefit from an increase in maximum credit lines on approved new loan application in Q3, 2017.

“Lenders demanded more collateral requirements from all firm sizes on approved new loan application in Q2, 2017. Similarly, lenders will demand for more collateral from all firm sizes in the next quarter.

“Demand for corporate lending from small businesses, medium & large PNFCs businesses increased in Q2, 2017. They were also expected to increase in the next quarter. Demand for overdrafts/personal loans in Q2, 2017 were higher in comparison with other business types.

“The most significant factors that influenced demand for lending in Q2, 2017 were the increase in inventory finance and capital investment, and they were expected to remain the main driver in the next quarter,” it added.

Also, it showed that corporate loan performance as measured by the default rates improved for the large PNFCS and the OFCs businesses in the review quarter, while it deteriorated for the small businesses and medium PNFCs. Default rates on lending to all sized businesses was also expected to improve in the next quarter except on small businesses.

The average credit quality on newly arranged PNFCs borrowing facilities improved in Q2 2017 but was expected to deteriorate in Q3, 2017. The target hold levels associated with corporate lending improved in Q2, 2017 and was expected to improve further in Q3, 2017. Loan tenors on new corporate loans deteriorated in Q2, 2017 and were expected to deteriorate further in the next quarter.

Also, draw down on committed lines by PNFCs improved in the current quarter, but was expected to deteriorate in the next quarter.

Lending to Households

In the review quarter relative to the previous quarter, lenders reported an increase in the availability of secured credit to households. Lenders noted that anticipation of a brighter economic outlook; favourable liquidity positions, higher appetite for risk and tight wholesale funding conditions were major factors behind the increase. The availability of secured credit was also expected to increase in the next quarter with favourable liquidity positions as the major contributory factor.

“Despite lenders stance on tightening the credit scoring criteria in Q2, 2017, the proportion of loan applications approved in the quarter increased. Lenders still expect the credit scoring criteria to remain tightened in the next quarter and a further increase in the proportion of approved household’s loan applications in Q3, 2017.

“Maximum Loan to Value (LTV) ratios increased in the current quarter, but was expected to decrease in the next quarter. Lenders expressed their willingness to lend at low LTV ratios (75% or less) in both the current and next quarters. “However, they expressed unwillingness to lend at high LTV (more than 75%) in the current quarter and the next quarter. The average credit quality on new secured lending improved in Q2, 2017 and was expected to improve further in Q3, 2017.

“Lenders reported that the overall spreads on secured lending rates to households relative to MPR widened in Q2, 2017 and was expected to further widen in the next quarter. Widened spreads were reported for prime, buy to let and other lending in Q2, 2017 and Q3, 2017,” it stated.

Furthermore, households demand for lending for house purchase increased in Q2, 2017 but was expected to increase in the next quarter. Of the total demand, increase in households demand for prime and buy to let were reported. Demand for secured lending on the prime and buy to let were expected to increase in the next quarter.

“Households demand for consumer loans rose in the current quarter and is expected to rise in the next quarter, demand for mortgage/re-mortgaging and small businesses declined in Q2, 2017 but was expected to rise in Q3, 2017.

“Secured loan performance, as measured by default rates improved in Q2, 2017 and was expected to improve further in Q3, 2017. Similarly, loss given default improved in the current quarter and it is expected to improve in the next quarter,” the report added.

The availability of unsecured credit provided to households rose in the current quarter and was expected to further rise in the next quarter.

Lenders reported brighter economic outlook, lower cost/availability of funds and higher appetite for risk as factors that contributed to the increase in Q2, 2017.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Banking Sector

CRC Credit Bureau Celebrates 15 Years with Record 14% Credit Penetration in Nigeria

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CRC Credit Bureau Limited celebrated its 15th anniversary with a record 14% credit penetration rate.

The occasion was marked with the CRC Finance and Credit Conference 2024 held in Lagos, where key industry stakeholders gathered to reflect on the bureau’s journey and discuss future trends in credit risk management.

Founded in January 2010 and licensed by the Central Bank of Nigeria (CBN), CRC Credit Bureau has played a pivotal role in enhancing access to credit across Nigeria.

Dr. Tunde Popoola, the Group Managing Director/CEO of CRC Credit Bureau Limited, highlighted the bureau’s journey, noting that from its inception with a single product, CRC has expanded its offerings to 18 products covering all aspects of the lending value chain.

Speaking at the conference, Dr. Popoola underscored the bureau’s contribution to Nigeria’s financial sector, stating, “CRC Credit Bureau has been instrumental in transforming access to credit in Nigeria over the past 15 years. We started with a vision to simplify credit access through reliable data and have since grown to serve millions of Nigerians.”

The event focused on the theme “Sustainable Financing Options: Innovations in Credit Risk Management,” emphasizing the importance of sustainable finance amid economic challenges.

The conference provided a platform for stakeholders to discuss strategies for mitigating risks and enhancing the efficiency of credit operations in Nigeria.

Reflecting on the current state of credit penetration, Dr. Popoola noted that while Nigeria has made significant progress, the 14% penetration rate still falls below global benchmarks.

He highlighted that CRC Credit Bureau currently holds credit scores for 33 million Nigerians, facilitating over 29.4 million searches in 2023 alone, with an additional 10 million searches conducted in the first quarter of 2024.

Joel Owoade, Chairman of CRC’s Board of Directors, acknowledged the economic headwinds impacting businesses in Nigeria but stressed the importance of sustainable financing to mitigate risks associated with lending.

“As we navigate economic fluctuations, sustainable financing remains crucial to fostering economic stability and growth,” Owoade remarked.

The conference also featured insights from industry experts on leveraging artificial intelligence (AI) in credit risk management and regulatory frameworks to support AI-driven innovations.

Olaniyi Yusuf, Managing Partner of Verraki, highlighted the potential of AI to create jobs and enhance economic productivity, calling for supportive regulatory environments that balance innovation with risk management.

Representatives from the Central Bank of Nigeria (CBN) emphasized the regulator’s efforts to promote sustainable credit practices.

Dr. Adetona Adedeji, Acting Director of the Banking Supervision Department at CBN, outlined initiatives such as the National Collateral Registry and Global Standing Instruction aimed at enhancing credit access while minimizing risks.

As CRC Credit Bureau looks ahead, Dr. Popoola expressed optimism about the future, stating, “We remain committed to driving greater financial inclusion and expanding credit access in Nigeria. Our focus is on leveraging technology and strategic partnerships to deliver innovative solutions that meet the evolving needs of consumers and lenders.”

The celebration of CRC Credit Bureau’s 15th anniversary underscored its pivotal role in Nigeria’s financial sector, marking a milestone in the nation’s journey towards broader financial inclusion and sustainable economic growth.

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Loans

Nigeria’s Public Debt Hits N101tn as World Bank Loans Soar to $4.95bn

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Nigeria’s public debt has breached the N101 trillion mark, driven by a substantial influx of loans from the World Bank totaling $4.95 billion over the past twelve months.

This surge in borrowing has raised concerns about the country’s ability to service its growing debt obligations amidst economic challenges exacerbated by the COVID-19 pandemic and fluctuating global oil prices.

As of December 2023, Nigeria’s debt stood at approximately N97 trillion, according to data from the Debt Management Office (DMO).

The recent borrowing spree has propelled this figure to N101 trillion, reflecting a rapid escalation in the country’s indebtedness.

The loans from the World Bank are earmarked for various developmental projects, including critical sectors such as power, women empowerment, education, renewable energy, and economic reforms.

These initiatives are part of Nigeria’s broader strategy to enhance infrastructure, socio-economic development, and institutional reforms aimed at bolstering long-term growth and resilience.

The breakdown of the World Bank funding includes $750 million allocated for power sector financing aimed at improving electricity generation and distribution, which remains a persistent challenge in Nigeria.

Another $500 million is dedicated to women’s empowerment programs, focusing on expanding opportunities and economic inclusion for women across the country.

Also, $700 million has been allocated to support education initiatives, particularly for adolescent girls under the Adolescent Girls Initiative for Learning and Empowerment project.

This funding seeks to enhance access to quality education and empower young girls in Nigeria.

Moreover, the World Bank has committed $750 million to the Distributed Access through Renewable Energy Scale-up project, aimed at increasing electricity access through renewable energy solutions.

This initiative targets over 17.5 million Nigerians who currently lack reliable electricity.

The largest tranche of $1.5 billion is designated for Economic Stabilisation to Enable Transformation Development Policy Financing Programme. This funding is intended to bolster fiscal revenues, expand social safety nets, and support economic diversification efforts to reduce dependency on oil revenues.

Despite these investments aimed at driving economic growth and improving living standards, concerns linger over Nigeria’s ability to effectively manage its escalating debt burden.

The country’s debt servicing costs have risen significantly, diverting resources away from critical sectors such as healthcare, education, and infrastructure development.

Critics argue that while external financing is necessary for development, the government must ensure transparency, accountability, and effective utilization of borrowed funds to avoid the pitfalls of previous debt mismanagement.

There is also a growing call for stringent fiscal discipline and reforms to enhance revenue generation and reduce dependency on borrowing.

President Muhammadu Buhari’s administration has defended the borrowing, asserting that it is crucial for bridging infrastructure gaps, stimulating economic growth, and creating job opportunities.

However, stakeholders emphasize the need for prudent debt management and sustainable economic policies to safeguard Nigeria’s financial stability and long-term prosperity.

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Insurance

Sanlam to Acquire 60% Stake in MultiChoice’s Insurance Arm for R1.2bn

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South African insurance giant Sanlam Limited has announced plans to acquire a 60% stake in NMS Insurance Services (NMSIS), the insurance subsidiary of pay TV operator MultiChoice Group, for R1.2 billion.

This strategic acquisition aims to enhance Sanlam’s footprint in the African insurance market and leverage MultiChoice’s extensive subscriber base across the continent.

In a joint statement released on Tuesday, both companies revealed that the deal includes a long-term commercial arrangement designed to expand insurance and related financial services to MultiChoice’s diverse audience.

The transaction also features a performance-based cash earn-out potential of up to R1.5 billion, contingent upon the gross written premium generated by NMSIS by the end of 2026.

Paul Hanratty, CEO of Sanlam Group, expressed optimism about the acquisition, stating, “This partnership provides a unique opportunity to combine our market presence and technological capabilities, fostering growth and market penetration while creating synergies beneficial to all stakeholders.”

Calvo Mawela, CEO of MultiChoice, highlighted the strategic significance of the collaboration, noting, “This deal not only enhances the value we provide to our subscribers but also taps into Sanlam’s expertise to drive innovation and growth in our insurance offerings across Africa. It’s a testament to the hard work and dedication of our teams.”

NMSIS has shown impressive growth, with gross written premiums increasing by 36% year-on-year and profit after tax rising by 51% in the first quarter of 2024.

MultiChoice plans to use the proceeds from the sale for working capital while retaining a 40% interest in NMSIS.

The move comes as MultiChoice faces economic challenges, including a 13% drop in subscribers in key markets such as Nigeria, Angola, Kenya, and Zambia due to economic hardships and currency devaluations.

Despite these setbacks, the partnership with Sanlam is seen as a strategic step to bolster its financial services offerings and stabilize revenue streams.

The announcement also follows recent regulatory developments, with MultiChoice entering a Cooperation Agreement with Groupe Canal+ SA after Canal+ acquired a 45.20% stake in MultiChoice, necessitating a mandatory offer under South African takeover regulations.

As the African insurance market continues to grow, Sanlam’s acquisition of a significant stake in NMSIS positions both companies to capitalize on emerging opportunities, providing innovative insurance solutions to millions of customers across the continent.

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