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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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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Pension

PFAs Posted Decent Growth – Coronation Economic Note

Published

12 hours ago

May 6, 2024

Samed Olukoya

According to the latest monthly report released by Nigeria’s Pension Commission (PENCOM), the assets under management (AUM) of the regulated pension industry increased by +26.2% y/y to N19.7trn.

Meanwhile on an m/m basis, the AUM decline marginally by -0.5%.

This marks the first decline since September ’22. Notably, FGN debt securities accounted for 62% of the total AUM in March ’24. Meanwhile, other asset classes such as private equities, real estate, and infrastructure funds, accounted for 0.4%, 1.4%, and 0.8% of total AUM, respectively.

Total FGN debt securities held by the Pension Fund Administrators (PFAs) increased by +19.7%
y/y but declined marginally by -1.4% m/m.

Specifically, we note that the FGN bond instruments held by the PFAs increased by +17.2% y/y to N11.5trn, but declined by -2.4% m/m, on the back of a 10-year tenure FGN bond maturity (N719.9bn). The FGN bonds account for 58% of the total AUM.

FGN bonds remain attractive due to its lower risk profile and elevated yields. It is worth noting that the average FGN bond yield increased by +219bps m/m as at end-March ‘24.

The PENCOM report shows that NTBs held by PFAs grew by +120% y/y and increased by +42.5% m/m to N407.6bn in March ’24. We note that the average NTB yield increased by +250bps m/m as at end-March’24.

This asset class accounted for just 2.1% of the total AUM in the same month.

Meanwhile, State government securities held by the PFAs increased by 64.1% y/y to N266.2bn in March ‘24.

It is worth highlighting that domestic equity holdings surged by 99.6% y/y and 8.7% m/m to N2.1trn in the same period, accounting for 10.6% of the total AUM in March ‘24 compared with 9.7% in February ’24. The NGX-all-share index (NGX-ASI) rose by +90.6% y/y and +4.6% during the same period.

Furthermore, YTD (28-March ’24) return on index rose by +18.1% to close at 39.8% from 33.7% in February ’24.

Recently, the market has shown a bearish trajectory as the NGX-ASI declined by -6.1% m/m as at end-April ‘24, partly, on the back of relatively weak corporate earnings amid inflationary conditions. Given expectations of higher yields in the fixed income market on the back of continuous tightening or a hold stance of the CBN at the next MPC meeting, PFAs are likely to reallocate a greater portion of pension assets to fixed income securities.

According to PENCOM, the total pension contributions since inception remitted to the Individual Retirement Savings Account (RSA) increased by +17.3% y/y to N9.9trn as at end-December ‘23 compared with N8.5trn recorded as at end-December ‘22. Remittance from the public sector accounts for 52%, while private sector accounts for 48% of the total pension contributions.

This can be partly attributed to improvement in the efforts to expand pension coverage.

Notably, PENCOM added a total number of 8,927 micro pension contributors in Q4 ’23 bringing the total number of registered MPCs in the Micro pension plan from inception to 114,382 as at end-December ’23 from 89,327 as at end-December ’22.

Banking Sector

GTCO Plc’s Profit Before Tax Grows by 587.5% to N509.35 Billion in Q1, 2024

Published

14 hours ago

May 6, 2024

Samed Olukoya

GTCO Commemorates Listing on Nigerian Exchange - Investors King

Guaranty Trust Holding Company (GTCO) Plc, one of Nigeria’s leading financial institutions, has unveiled its first quarter (Q1) financial results for the period ending March 31, 2024.

According to the report submitted to the Nigerian Stock Exchange (NGX), GTCO recorded a 587.5% growth in profit before tax (PBT) to N509.35 billion.

This substantial increase in pre-tax profit represents a significant jump from the N74.089 billion reported in the corresponding period of the previous year.

The financial statement also revealed a 227.93% rise in income tax to N52.213 billion, compared to N15.922 billion in the same period of 2023.

As a result, GTCO’s profit after tax (PAT) for the first quarter of 2024 rose to N457.134 billion, an exceptional growth of 685.9% from N58.167 billion recorded in the first quarter of the previous year.

The strong performance of GTCO can be attributed to several key factors. The Group’s loan book increased by 21.9% rising from N2.48 trillion recorded in December 2023 to N3.02 trillion by March 2024.

Similarly, deposit liabilities grew by 26.0% from N7.55 trillion in December 2023 to N9.51 trillion in March 2024.

Despite the challenging economic environment, GTCO’s balance sheet remained well-structured, diversified, and resilient.

Total assets closed at an impressive N13.0 trillion while shareholders’ funds stood solid at N2.0 trillion.

Commenting on the outstanding financial results, Mr. Segun Agbaje, the Group Chief Executive Officer of Guaranty Trust Holding Company Plc, expressed optimism about the future.

He said the robust performance across all business verticals reaffirmed the value of the Holding Company Structure.

“Our first quarter results reflect the unfolding value of what we have created in all our business verticals through the Holding Company Structure – from Banking and Payments to Funds Management and Pension,” said Mr. Agbaje.

“We are positioned to compete effectively on all fronts and fulfill all our customers’ needs under a unified, thriving financial ecosystem.”

The growth in profitability underscores GTCO’s resilience, strategic focus, and unwavering commitment to delivering superior value to its stakeholders amidst evolving market dynamics.

As the Group continues to leverage its strengths and innovative capabilities, it remains well-positioned to navigate the ever-changing landscape of the financial services industry with confidence and resilience.

Banking Sector

UBA Plc Reports 166% Surge in Q1 Profit to N143 Billion

Published

14 hours ago

May 6, 2024

Samed Olukoya

United Bank for Africa (UBA) Plc has made a significant leap in its financial performance, reporting a 166% surge in its first-quarter profit to N143 billion.

The details, disclosed in the financial services group’s unaudited report for the first quarter, showed a robust growth trajectory despite challenging market conditions.

This surge translates to a 169.4% year-on-year increase in earnings per share (EPS) to N3.96 in the first three months of the year, up from N1.47 reported in the same quarter of 2023.

According to the financial results, interest income rose by 129.7% year on year to N440.76 billion. The bank also witnessed a significant uptick in investment, reporting a 147.1% year-on-year growth.

UBA’s interest expense saw an increase of 93.9% year on year to N140.09 billion. This was attributed to higher costs incurred on deposits from customers, deposits from financial institutions, and borrowings.

Despite this, customers’ deposits grew by 112.6% year on year to N18.38 trillion.

Net interest income also grew by 151.3% year on year to N300.68 billion from about N120 billion in the previous year.

Furthermore, non-interest income advanced by 38.9% year on year to N77.91 billion, fueled by expansions in net fees and commission income and net FX trading income.

At the end of Q1, UBA’s operating income stood at N373.31 billion, a 122.5% year-on-year increase.

However, operating expenses saw an uptick of 104.1% year on year, driven by expansions in employee benefits, regulatory costs, and inflationary pressures.

Despite these challenges, the group’s profit-before-tax surged by 154.7% year on year to N156.34 billion from N61.37 billion a year ago.

Net profit also increased by 166.1% year on year to N142.58 billion from N53.59 billion in the previous year.

UBA’s stellar performance in the first quarter underscores its resilience, strategic positioning, and commitment to delivering value to shareholders amid evolving market dynamics. As the bank continues to navigate challenges and seize opportunities, it remains poised for sustained growth and value creation in the financial services sector.