Finance

Banks Tighten Terms for Credit Cards

Published

7 years ago

June 19, 2017

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.

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Samed Olukoya

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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Finance

Moniepoint Strengthens Efforts to Broaden Financial Access Through Collaborative Initiatives

Published

1 day ago

July 25, 2024

Samed Olukoya

Africa’s fastest growing financial institution according to the Financial Times, Moniepoint Inc has underscored the importance of a collaborative and holistic stakeholder approach in advancing the future of financial and economic inclusion in Nigeria.

In a recent high-level policy dialogue between the Nigerian government and private sector stakeholders held in Washington DC, Moniepoint Inc’s Group CEO and Co-Founder, Tosin Eniolorunda emphasized the importance of public-private collaborations in addressing trust issues that have slowed down the adoption of innovative fintech solutions for economic and financial inclusion.

“Moniepoint has long championed the importance of financial inclusion and financial happiness. Building trust with the public and government, improving business and consumer access to the financial system are critical issues that are aligned to our philosophy. As testament to our commitment, we recently launched a landmark report investigating Nigeria’s informal economy, highlighting opportunities to widen financial inclusion to historically underserved communities. The outputs from this strategic gathering will go a long way in bolstering Nigeria’s economy even as closer linkages are formed from public-private collaboration which will be a huge boost to the overall development and competitiveness of the larger financial services industry,“ Eniolorunda said.

The event, which brought together government officials, regulators, law enforcement agencies, and fintech industry leaders at George Washington University, aimed to leverage innovative approaches to drive a sustainable and inclusive financial system in Nigeria.

Vice President Kashim Shettima, addressing the gathering via video conference, highlighted the urgent need for financial innovation to drive Nigeria’s economic and financial inclusion agenda. This aligns with President Bola Ahmed Tinubu’s administration’s commitment to bringing over 30 million unbanked Nigerians into the formal financial sector as part of the Renewed Hope Agenda.

“We must develop a sustainable collaboration approach that will facilitate the adoption of inclusive payment to achieve our objective of economic and financial inclusion,” Vice President Shettima stated.

The dialogue focused on addressing critical challenges in Nigeria’s fintech ecosystem, including regulatory oversight, security concerns, and trust issues that have hindered the widespread adoption of innovative financial solutions. Participants explored strategies to enhance interagency collaboration and strengthen the overall effectiveness of the financial services sector.

Philip Ikeazor, Deputy Governor of the Central Bank of Nigeria responsible for Financial System Stability, emphasized the need for ongoing collaboration among all stakeholders to meet the goals of the Aso Accord on Economic and Financial Inclusion.

Kashifu Inuwa Abdullahi, Director General of the National Information Technology Development Agency (NITDA), advocated for “a digital-first approach and the fusion of digital literacy with financial literacy to address trust issues affecting the inclusive payment ecosystem.”

Dr. Nurudeen Zauro, Technical Advisor to the President on Economic and Financial Inclusion, explained that the gathering aims to evolve into a mechanism providing relevant information to the Office of the Vice President, facilitating effective decision-making for economic and financial inclusion.

The event resulted in various recommendations covering rules, infrastructure, and coordination, with a focus on implementable actions and clear accountabilities. As discussions continue, Moniepoint remains dedicated to leveraging its expertise and technology to support the government’s financial inclusion goals and create a more financially inclusive society for all Nigerians.

Other notable speakers included Inspector General of Police Mr. Kayode Egbetokun, Executive Director of the Center for Curriculum Development and Learning (CCDL) at George Washington University Professor Pape Cisse, Assistant Vice President at Merrill Lynch Wealth Management Mr. Reginald Emordi, Regional Director for Africa at the Center for International Private Enterprise (CIPE) Mr. Lars Benson, and United States Congresswoman representing Florida’s 20th congressional district, The Honorable Sheila Cherfilus-McCormick, Prof Olayinka David-West from the Lagos Business School among others.

Banking Sector

CBN Rate Hikes Raise Borrowing Costs for Banks Seeking FX

Published

2 days ago

July 24, 2024

Samed Olukoya

The Central Bank of Nigeria (CBN) has implemented a significant adjustment to its borrowing rates.

The move, which follows the CBN’s recent decision to adjust the asymmetric corridor around the Monetary Policy Rate (MPR), has led to an increase in the cost of borrowing for banks seeking foreign exchange (FX).

This decision comes amid heightened concerns over the Naira’s performance and inflation rates.

According to Bismarck Rewane, Managing Director/CEO of Financial Derivatives Company Limited, the adjustment means that banks now face borrowing costs of nearly 32% from the CBN, a sharp increase from the previous rate of approximately 26%.

This change in borrowing costs is intended to deter banks from relying on the CBN for FX purchases, thereby reducing pressure on the Naira.

Data reveals that in the first five days of July 2024, banks borrowed an unprecedented N5.38 trillion from the CBN, marking a record high.

The increased borrowing costs are expected to reduce this practice, thereby alleviating some of the strain on the Naira.

Despite these efforts, the Naira has continued to struggle. On Tuesday, the Naira depreciated by 3.13% against the US dollar, with the exchange rate falling to N1,548.76.

This decline is attributed to reduced dollar supply and ongoing uncertainty surrounding Nigeria’s foreign reserves.

The black market saw an even sharper drop, with the Naira falling to 1,687 per dollar, reflecting broader concerns about currency stability.

Rewane highlighted that the recent rate hikes are part of a broader strategy by the CBN to manage inflation and stabilize the Naira.

“The increase in borrowing costs is a necessary step to address the carry trade practices where banks use cheap funds from the CBN to buy FX and sell it at higher rates,” he explained.

The CBN’s decision to raise borrowing costs comes amid a backdrop of persistent inflation and rising interest rates.

Over the past three years, the CBN has raised interest rates 12 times, with recent adjustments aimed at managing liquidity and curbing inflation.

As of June 2024, Nigeria’s headline Consumer Price Index (CPI) reached 34.19%, up from 33.95% in May.

The central bank’s policy changes are expected to have mixed effects.

Analysts at FBNQuest anticipate that banks will continue to benefit from the high-interest rate environment, potentially leading to a shift of assets from equities to fixed-income securities as investors seek higher yields.

The CBN remains committed to navigating Nigeria through these challenging economic conditions.

By adjusting borrowing costs and implementing tighter monetary policies, the central bank aims to strike a balance between managing inflation, stabilizing the Naira, and supporting overall economic growth.

Finance

Senate Passes Bill for 70% Windfall Levy on Banks’ Forex Gains

Published

3 days ago

July 24, 2024

Samed Olukoya

The Nigerian Senate has approved an amendment to the Finance Act of 2023, increasing the windfall levy on banks’ foreign exchange gains from 50% to 70%.

The bill was passed during a plenary session on Tuesday after a thorough review by the Finance Committee.

The Senate’s decision aims to address the significant profits banks have accrued due to recent foreign exchange policy shifts.

This windfall is viewed as a product of government intervention rather than the banks’ strategic efforts, prompting the call for redistribution.

The additional revenue from this levy is expected to contribute to financing the N6.2 trillion Appropriation Amendment Bill.

This funding will support various government projects and initiatives, ensuring that the windfall benefits are reinvested into the economy.

The Senate also approved amendments to the payment timeline, setting the levy to take effect from the start of the new foreign exchange regime through 2025, avoiding retrospective application from January 2024.

Also, the Upper Chamber removed the proposed jail term for principal officers of defaulting banks.

Instead, banks that fail to remit the levy will incur a penalty of 10% per annum on the withheld amount, alongside interest at the prevailing Central Bank of Nigeria (CBN) Minimum Rediscount Rate.

This legislative move aligns with President Tinubu’s broader fiscal strategy, which aims to optimize national revenue through independent sources.

The amendment underscores the Senate’s commitment to leveraging bank profits for national development, especially amid economic challenges.

While some industry stakeholders express concerns about the impact on banking operations, others see this as a necessary step towards equitable wealth distribution and economic stability.

The bill’s passage is anticipated to have significant implications for both the financial sector and the broader economy.