The significant increase in loan defaults by the Central Bank of Nigeria (CBN) to large private non-financial companies (PNFCs) and other financial companies (OFCs) has attracted attention, marking a worrying shift in credit performance at the top of the lending market.
According to Apex Bank’s first quarter 2025 credit conditions survey report, the negative default index score for large companies and OFC is -0.6. These scores reflect the net balance of lender responses, where negative values indicate that lenders have worsened default rates than lenders who see improvements. These figures mark a significant deviation in the trivial gains recorded in previous quarters, with the default indexes for large companies being 4.3 and 4.9, respectively, for the fourth and third quarters 2024, respectively. OFC similarly showed progress in 5.0 and 6.8 during the same period, and also slipped into the negative zone.
The report shows that deterioration in loan performance among these larger borrowers is becoming the source of increasing concern for credit risks in the financial sector in Nigeria. While lending performance in most other segments has generally improved, the reversal of these two key categories may have profound implications for lenders, especially given the great role these entities play in commercial credit exposure.
The CBN report noted that despite the worsening defaults between large companies and OFCs, lenders have lower default rates in other areas. The default index for small businesses is 0.5, although this is a drop from 9.0 in the previous quarter. The default index for medium-sized PNFC records is 3.0, showing relatively good performance. These figures indicate a gradual recovery among smaller businesses, which seems to be consistent with recent lending models that have added to access to credit and stricter loan underwriting.
In the household loan sector, loan performance continues to rebound, with the default index for secured loans at 3.9 and unsecured loans rising to 5.0. These figures continue to recover from negative numbers recorded in 2022 and early 2023, when high-level household loan defaults posed significant challenges for lenders. Although mortgage and credit card products were weaker in the quarter, the demand for overdrafts and personal loans increased and the income from household loans increased.
While demand for credit remains strong in many segments, lenders’ response is to tighten the credit scoring criteria for Q1 2025. Loan approvals have increased in the secured and corporate categories, but failed due to unsecured loans, suggesting that the loans have become more cautious with riskier lenders. Inventory financing is considered the main driver of corporate demand for borrowing in the quarter, indicating an increase in operational demand amid continued economic pressure.
The report also highlights the shift in loan pricing. The differences in monetary policy rates (MPR) in most categories, especially for secured and unsecured household loans, reflect stricter risk pricing. For corporate loans, in addition to OFCS, interest rate spreads have also increased. Although the default rate of OFCS has increased, the interest rate spreads on commodity loans have also narrowed. This difference may indicate that some lenders are still willing to expand favorable clauses to the OFC and may foresee future liquidity support or regulatory interventions.
CBN clarified that the report reflects the views of participating lenders and does not represent the official position of the bank. Nevertheless, these findings provide a critical snapshot of credit sentiment and risk assessments in Nigeria’s financial system in early 2025.
The re-deterioration of deterioration in loan performance for large enterprises and OFCs may affect banking confidence, especially as macroeconomic adjustments remain unchanged. While the resilience shown by SMEs and households provides a hint of optimism, challenges on the upper side of the credit lineage may prompt increased supply, stricter credit standards and a more conservative approach to lending in the coming months.
