Nigerian Banks See Surge in Loan Defaults Amid Economic Hardship
- Nigerian banks saw loan default rates skyrocket in the last quarter of 2024, a CBN survey has shown
- This, analysts noted, was a result of the high interest rate and harsh macroeconomic conditions in the country
- Despite the rise in default rates, the report indicated a growing demand for loans across all categories
Legit.ng journalist Ruth Okwumbu-Imafidon has over a decade of experience in business reporting across digital and mainstream media.
Nigerian banks and other lenders have experienced an increased rate of loan defaults, thanks to the economic hardships that have plagued the country in the last year.
A recent survey from the Central Bank of Nigeria (CBN) shared that lenders faced a significant rise in loan defaults during the fourth quarter of 2024 (Q4’24).
The findings, published in the "Credit Condition Survey Report for Q4’24," indicated that Nigerian financial institutions reported higher default rates across all types of loans, including secured, unsecured, and corporate lending.
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The report further noted that while financial institutions observed increased credit availability for corporate loans in Q4 ’24, secured household loans dwindled.
CBN increases benchmark interest rates
Recall that the CBN Monetary Policy Committee (MPC) increased the benchmark lending rate severally from 2023 to 2024, closing at 27.50% by November 2024.
Economic analysts resisted this move, saying that the increased interest rates worsened hardship for the common man rather than curbing inflation as the CBN predicted.
Several analysts hope that the committee will moderate its stand and come up with more accommodating policies in 2025.
Demand for loans increases despite defaults
Despite the increase in defaults, demand for credit across all lending categories increased during the quarter, the Vanguard reports.
For secured and unsecured household loans, factors such as consumer loans and credit card borrowing from households contributed to the surge in demand.
In the corporate sector, inventory financing emerged as a major driver behind the increased demand for business loans, along with other factors like commercial real estate restructuring, capital investments, and Mergers and Acquisitions.
The CBN report also highlighted that while credit demand for all types of loans increased overall, demand for mortgages and re-mortgages from households decreased.
Recall that Q3 2024 showed that Microfinance banks pooled an impressive 6,253 loans out of 6,537 loans across all credit types in the period.
Manufacturers shun bank loans over high interest rates
A recent Legit.ng report showed that manufacturers were shunning loan facilities from banks to explore other funding options, with the sector recording the lowest credit in two years in 2024.
Speaking to the challenges on the ground, Dr Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), noted that manufacturers already have problems repaying the loans they owe due to high interest rates.
This, he said, made them unwilling to take on more loans with interest rates as high as 39%. Yusuf also pointed out several other challenges being faced by the manufacturing sector, noting that the high interest rates further compounded their woes.
Proofreading by James, Ojo Adakole, journalist and copy editor at Legit.ng.
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