Central bank of Nigeria revealed that loan default rates have worsened, therefore, financial institutions are demanding legitimate collateral from firms who are seeking loans from them.
The reason for this high demand is based on the forthcoming increase in the overall availability of credit to the corporate sector in first quarter 2017 just as it increased in the fourth quarter of 2016 as reported in the Credit Conditions Survey Report for Q4 2016. The major factor for the increase were changing sector specific risk, brighter economic outlook, favourable liquidity conditions and tight wholesale funding conditions.
Meanwhile, the increase in availability of credit only applies to the Large Private Non Financial Corporations and other corporations but vice versa for the Small and Medium Private Non Financial Corporations and the same is to occur in Q1 2017.
“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.”quoted from the report
The Large Private Non Financial Institutions should get their selves prepared for 2017 because more heat is to come from their financial institutions. 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.
The report also said that 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.