According to the Central Bank of Nigeria (CBN), large private corporations in Nigeria are facing increased challenges in repaying their loans. The CBN has raised concerns over rising credit risk in the upper tier of the lending market.Â
The apex bank’s Credit Conditions Survey for the first quarter of 2025 reveals that large Private Non-Financial Corporations (PNFCs) and Other Financial Corporations (OFCs) recorded higher loan default rates, reversing the modest gains in previous quarters.
The report highlights a worrying trend for big-ticket borrowers, with large PNFCs and OFCs posting negative default index scores of -0.6. This indicates that more lenders are seeing increased defaults in these segments than those reporting improvements—an adverse development given the significant share of commercial loans typically allocated to these entities.
Decline in Repayment Performance Among Top-Tier Borrowers
In contrast to the relatively stronger loan performance among small and medium businesses, large corporations and financial institutions saw a marked deterioration in their ability to meet debt obligations. This shift is particularly significant because these large borrowers contribute a considerable portion of the Nigerian banking sector’s credit exposure.
For context, large corporates had shown improvement in Q4 2024 with a positive default index score of 4.3, following a 4.9 score in Q3. Similarly, OFCs posted positive scores of 5.0 and 6.8 in the previous two quarters. The sudden reversal in Q1 2025 signals rising financial stress, possibly tied to macroeconomic pressures, foreign exchange instability, or industry-specific disruptions.
SMEs and Medium-Sized Firms Show Improved Credit Health
Small and medium-sized businesses recorded improved loan repayment behaviors during the quarter. Small businesses had a positive default index of 0.5, albeit a decline from 9.0 in Q4 2024, while medium-sized PNFCs posted a stronger index of 3.0, indicating broader resilience within the SME segment.
This trend reflects increased access to credit and possibly more rigorous underwriting practices for smaller borrowers. The improved cash flow dynamics and targeted support for SMEs may also contribute to their healthier loan performance. Lenders are becoming more cautious with their credit policies but favor the SME sector, which has shown steady demand and repayment discipline.
Households Maintain Positive Credit Trajectory
Household loan performance also remained solid in Q1 2025. Secured loans had a default index of 3.9, while unsecured household loans recorded 5.0, extending a recovery trend that began in late 2023. This marks a significant rebound from the negative territory observed throughout 2022, when household defaults were a major concern.
The report notes growing demand for overdrafts and personal loans, while mortgage and credit card products saw reduced interest rates. The sustained improvement in household loan performance suggests a more stable consumer lending environment, likely supported by improved personal income flows and cautious borrower behavior.
Tighter Credit Policies Amid Growing Demand
Although demand for loans continued to rise—especially for secured and corporate lending—lenders have tightened credit scoring standards, particularly for unsecured loans. This cautious stance and selective lending point to heightened risk aversion among Nigerian banks amid growing concerns about repayment capacity.
Loan approvals increased in the corporate and secured lending segments, while approval rates fell for unsecured loans. The trend shows that lenders are becoming more selective in their approach, possibly trying to limit their exposure to high-risk borrowers.
According to the report, the demand for corporate loans was largely driven by inventory financing needs, signaling that many companies are borrowing to maintain or build stock in response to market fluctuations or supply chain pressures.
Loan Pricing Adjustments Reflect Risk Sensitivity
The survey further indicates that loan spreads over the Monetary Policy Rate (MPR) widened across most borrower categories. This reflects increasing risk premiums being placed on new credit. Secured and unsecured household loans saw higher spreads, indicating lenders adjust rates to compensate for perceived credit risks.
However, the spread narrowed for OFCs despite their poor default performance. This anomaly may suggest that certain lenders are willing to offer more favorable terms to OFCs, possibly anticipating policy support, improved liquidity conditions, or long-term strategic value from maintaining those relationships.
Outlook and Implications
The surge in defaults among Nigeria’s large corporate borrowers and financial institutions could impact overall banking sector confidence and lead to tighter credit conditions for large-scale lending. In response, financial institutions may increase loan provisioning and adopt stricter risk management practices.
In contrast, the relative stability seen in household and SME lending is a bright spot. Lenders seeking stable and profitable loan books in a turbulent economic environment may continue to focus on these segments.
While the CBN notes that the report reflects the sentiment of surveyed lenders and does not represent its official stance, the findings offer a valuable glimpse into evolving credit trends and risk perception in Nigeria’s financial system.
