Recently, the Central Bank of Nigeria (CBN) strengthened its efforts to spur consumer lending to the private sector amid reluctance by big banks to expand credit to the private on fears of growing non-performing loans (NPLs). At the conclusion of a meeting between the CBN and the Bankers’ Committee – an umbrella body of bank CEOs in Nigeria, both parties agreed to push forward a new credit risk clause for consumer lending to protect lenders.
Specifically, the clause will enable a bank/lender to recover its loan from a defaulting borrower by granting the lender access to the defaulter’s assets, domiciled in other banks. According to media reports, the new clause will require a letter of commitment by customers to exercise the clause, in the case of default. If properly implemented, we believe that this new measure would help stem the tide of defaults on bank loans by customers, allaying banks fears to lend to the high-risk sectors like the real sector without necessarily increasing their NPL ratio.
While we await the official circular from the CBN, we opine that the new credit risk clause is
positive for credit supply by the banks/lenders amid weaker appetite for loan growth. However, this may slow demand for credit, especially from high profile borrowers with bad credit history.
Overall, the new clause should strengthen credit quality across the financial sector.
United Capital Plc Research (UCR)
