Lending by banks to consumers fell cumulatively by 11 percent or N100 billion to N1.4 trillion over two months – July and August 2020 – driven by pressure to curtail rising bad loans. Bankers said the development was prompted by the impact of the COVID-19 pandemic as well as rise in bad loans in the first four months of the year. Vanguard analysis of the monthly economic reports of the Central Bank of Nigeria (CBN) shows that volume of banks’ lending on consumer credit declined 3.8 percent in July to N1.47 trillion from N1.53 trillion in June. The decline worsened in August when consumer credit dropped further by 6.7 percent to N1.43 trillion, giving a cumulative decline of 11 percent in consumer credit over the two consecutive months.
This development is in contrast to the 14 percent growth in consumer credit from January to May this year. Buoyed by CBN’s 60 percent maximum Loan-to-Deposit Ratio (LDR) directive to banks, consumer credit rose to N1.6 trillion in May from N1.4 trillion in January 2020. However, bank sources noted that the outbreak of the COVID-19 pandemic and the subsequent lockdowns in commercial activities undermined cash flow and income of individuals and businesses. This, according to them, triggered increase in banks’ Non-Performing Loans (NPL), leading to 50 basis points rise in the NPL ratio of the banking industry to 6.6 percent in April 2020 from 6.1 percent in December 2019.
According to National Bureau of Statistics (NBS) ‘Selected Banking Sector Indicators’ report for the second quarter of 2020 (Q2’2020), banks’ NPL rose by 13 percent to N1.212 trillion in June this year from N1.059 trillion in December 2019. Consequently, this reduced banks’ appetite for consumer lending, especially of unsecured and credit card loans. Confirming this in its Credit Conditions Survey report for third quarter 2020 (Q3’2020), CBN noted that banks reported higher loan loss due to loan default by households. This prompted banks to reduce the availability of unsecured credit to households, while also cutting down number of approved loan applications by households.
The report stated: “Secured loan performance, measured by default rates, improved in Q3 2020 but it is expected to decline in Q4’ 2020. However, bank lenders reported higher loss given default by households in Q3 2020, and they expect higher losses in Q4’ 2020.