Economy News Correspondent
Ruth Ogbechie
The Central Bank of Nigeria (CBN) has expressed alarm over a sharp rise in loan defaults among large Private Non-Financial Corporations (PNFCs) and Other Financial Corporations (OFCs), signaling a troubling shift in credit quality at the higher levels of the lending market.
In its Credit Conditions Survey Report for Q1 2025, the CBN revealed that both large firms and OFCs recorded a negative default index score of -0.6. This index, which measures the balance of responses from lenders, indicates that more institutions reported worsening loan performance than improvements. This decline is a notable reversal from previous quarters — large corporates had posted positive scores of 4.3 and 4.9 in Q4 and Q3 of 2024, while OFCs recorded 5.0 and 6.8 in the same periods.
The report raises red flags about the deteriorating loan health of major borrowers, which could pose systemic risks given their significant share in Nigeria’s credit exposure. Although other segments of the market are showing improvement, the downturn among these key players could have serious implications for financial stability.
Smaller businesses fared better by comparison. Small enterprises had a default index of 0.5 — a drop from 9.0 in the prior quarter — while medium-sized PNFCs saw a healthier 3.0. These figures point to a gradual recovery in the SME sector, supported by improved access to financing and tighter loan approval processes.
On the household front, loan repayment trends continued to improve. Secured loans posted a default index of 3.9, while unsecured loans rose to 5.0, signaling a sustained rebound from the elevated default rates seen in 2022 and early 2023. This improvement was largely driven by stronger demand for personal loans and overdrafts, even though interest in mortgages and credit card lending remained soft.
Credit demand remained robust across various segments, but banks responded by tightening their lending standards in Q1 2025. While loan approvals increased in secured and corporate categories, approvals for unsecured loans declined, suggesting a more cautious lending environment. Among corporates, borrowing was fueled largely by the need for inventory financing, reflecting operational pressures in the current economic climate.
The report also noted changes in loan pricing. Interest rate spreads over the Monetary Policy Rate (MPR) widened for most types of lending, particularly household loans, highlighting increased risk premiums. For corporate loans, spreads also rose, except in the case of OFCs — where spreads surprisingly narrowed, possibly due to lenders anticipating future liquidity support or regulatory intervention.
While the CBN emphasized that the report represents lenders’ perspectives and not its official stance, the findings offer valuable insight into prevailing credit risk and market sentiment at the start of 2025.
Ultimately, the decline in loan performance among large corporates and OFCs may shake confidence in the banking sector. Although small businesses and households show signs of resilience, the challenges faced by major borrowers could push banks to adopt tighter lending policies, raise loan loss provisions, and take a more conservative stance in the coming months.
