The Central Bank of Nigeria (CBN) has raised concerns over increasing loan defaults among Large Private Non-Financial Corporations (PNFCs) and Other Financial Corporations (OFCs), according to its Credit Conditions Survey Report for Q1 2025.
While loan performance improved across most lending segments, the report indicates a reversal in repayment behavior among large firms and financial institutions. Both groups posted negative default index scores of -0.6, signaling a deterioration in credit performance.
“Lenders reported lower default rates for secured and unsecured lending in the review quarter. For corporate lending, small businesses and medium PNFCs reportedly had lower default rates, but large PNFCs and OFCs had higher default rates,” the report stated.
Defaults Worsen for Large Borrowers
The default index represents the net balance of lender responses, with negative values indicating that more lenders experienced worsening defaults than improvements.
- In Q4 2024, large corporates had recorded a positive default index of 4.3, following a 4.9 score in Q3. OFCs similarly posted 5.0 and 6.8, respectively, in the same quarters.
- The latest figures signal a reversal of those gains, pointing to increasing pressure on debt servicing among larger entities—borrowers that typically account for a significant share of total credit exposure in the banking sector.
Conversely, smaller market segments showed resilience:
- Small businesses posted a positive default index of 0.5, although a decline from 9.0 in the previous quarter.
- Medium-sized PNFCs recorded a score of 3.0, reflecting relatively stable loan performance.
Analysts link these trends to recent lending behaviors that favor SMEs, stricter underwriting standards, and improved cash flows.
Household Loan Performance Remains Strong
The report also highlighted sustained improvement in household loan repayments:
- Secured household loans recorded a default index of 3.9.
- Unsecured loans came in higher at 5.0.
These figures mark a continued rebound from the negative performance seen in 2022 and early 2023. Demand for household credit also remained strong, particularly for overdrafts and personal loans, although appetite for mortgage and credit card products weakened during the quarter.
Credit Tightens Despite Rising Demand
Despite increased demand—especially for corporate and secured loans—lenders reported tightening credit scoring standards in Q1 2025. Loan approvals rose in the secured and corporate categories but fell for unsecured lending, reflecting a more cautious approach by lenders.
- Corporate loan demand was largely driven by inventory financing, which lenders identified as a key reason behind the surge in credit applications.
- On pricing, lenders noted that loan spreads over the Monetary Policy Rate (MPR) widened across most segments, indicating higher risk premiums:
- Both secured and unsecured household lending saw increased spreads.
- Spreads also widened for most corporate borrowers—except OFCs, where spreads narrowed, possibly signaling lender optimism about improved liquidity or anticipated policy support.
Implications for the Financial Sector
The deterioration in loan performance among large firms and OFCs could impact credit risk assessment and investor confidence, especially amid ongoing macroeconomic adjustments.
Although the performance of SME and household segments offers a positive outlook, poor repayment behavior at the upper end of the lending market may lead to:
- Higher loan loss provisions,
- Tighter credit policies,
- More cautious disbursement of large-ticket loans.
The CBN emphasized that the report reflects the views of participating lenders and does not represent its official position. However, the survey remains a valuable indicator of market sentiment and systemic credit risk.
