The Central Bank of Nigeria (CBN) has raised concerns over rising loan defaults among large Private Non-Financial Corporations (PNFCs) and Other Financial Corporations (OFCs), as highlighted in its Credit Conditions Survey Report for Q1 2025.
According to the report, both large firms and OFCs showed negative default index scores of -0.6, indicating more lenders observed a deterioration in repayments than improvements, Channels TV reports. This marks a reversal from the slight recovery seen in recent quarters, where both groups previously reported positive default trends.
Although overall loan performance improved in most sectors, the uptick in defaults among major borrowers has sparked new worries about credit risk at the higher end of the market.
The report noted:
“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.”
In comparison, Q4 2024 saw a positive default index of 4.3 for large firms and 5.0 for OFCs, building on even stronger performances in Q3 2024. The current drop suggests these groups may be facing increased financial pressure, which is particularly concerning given their significant share of total commercial credit.
On the brighter side, small and medium enterprises (SMEs) showed continued improvement. Small businesses posted a positive index of 0.5, albeit lower than 9.0 in the previous quarter, while medium PNFCs recorded 3.0, suggesting better loan repayment behaviour in these categories. These gains align with recent trends of improved loan access and stricter lending standards, possibly contributing to better credit outcomes.
Household loan performance also showed strong signs of recovery, with default indexes of 3.9 for secured loans and 5.0 for unsecured loans in Q1 2025. This improvement reflects a broader rebound from the struggles seen in 2022 and early 2023, especially in personal lending.
Meanwhile, although demand for credit rose—particularly for corporate and secured loans—lenders reported tightened approval criteria, especially for unsecured lending. While more loans were approved for secured and corporate borrowers, unsecured approvals declined, signaling more selective lending practices.
The main driver behind increased corporate loan demand was attributed to the need for inventory financing, the report stated.
On interest rate margins, lenders reported wider loan spreads over the Monetary Policy Rate (MPR) in most categories, reflecting more cautious risk pricing. However, OFCs saw narrower spreads, possibly indicating that some lenders are trying to accommodate them, anticipating liquidity improvements or government support despite their recent default issues.
The CBN clarified that the findings are based on the views of participating lenders and do not necessarily reflect the Bank’s official stance. Still, the report offers valuable insights into current credit market dynamics in Nigeria.
The resurgence of defaults among large firms and OFCs could undermine banking sector confidence, potentially leading to higher loan loss provisions, stricter credit terms, or a slowdown in large-scale lending—despite ongoing macroeconomic adjustments.