- The Central Bank of Nigeria said banks and other financial institutions recorded higher loan default rates in the fourth quarter of 2024
- The CBN said secured lending decreased, while unsecured lending increased in Q4 2024
- Analysts attribute the trend of debt reliance to inflationary pressures, naira depreciation, and other factors
The Central Bank of Nigeria (CBN) says lenders, including commercial banks and other financial institutions, recorded higher default rates for secured, unsecured, and corporate loans in the fourth quarter (Q4) of last year 2024.
The CBN revealed this in its Q4 2024 Credit Conditions Survey Report published on its website.
The report indicates a shift in borrowing patterns in Nigeria, as demand for collateral-free loans exceeds secured credit despite a growing trend of higher default rates, which refers to when a lender is unable to collect payment on an outstanding debt.
Also, the report stated that the proportion of loan approval increased for secured and corporate lending types, while the proportion of loan approval for unsecured lending decreased in Q4 2024.
It said lenders reported that households and businesses relied increasingly on both secured and unsecured loans despite the widening gap between lending rates and the Monetary Policy Rate (MPR).
All lending type spreads on loans relative to MPR also widened for corporate lending except Offshore Financial Centres (OFCs), which narrowed in the current quarter, the report noted.
“Lenders reported increased credit availability for corporate lending in Q4’24, while Secured lending to households declined during the period.
“The demand for credit across all lending types increased in Q4’24.
“The factors influencing the increase for secured and unsecured household loans were consumer loans from households and credit cards lending from households, respectively, while inventory finance was the major factor that influenced the change in demand for corporate lending,” the report stated.
Secured and unsecured lending patterns in Q4 2024
The CBN’s report said there was a decrease in secured credit availability, loans granted with collateral, and come with lower interest rates, which was due primarily to a changing economic outlook, while market share objectives led to an increase in unsecured lending.
The central bank stated that unsecured lending, which does not require collateral but depends on the ability of the lender to evaluate the borrower’s creditworthiness and cash flow, increased in the review period.
Loans classified as unsecured credit include personal loans for home renovations, medical bills, and education costs, among others, which attract higher interest rates.
According to the CBN, corporate lending, which provides loans to businesses and organisations for business growth and economic development, recorded an increase in Q4.
It added that in the period under review, the changing economic outlook was a major factor affecting corporate credit availability.
Also, the demand for credit increased for all lending types, though that for mortgage/re-mortgage from households decreased in Q4, the report further stated.
Analysts attribute debt reliance to inflationary pressures, naira depreciation, others
The changing trend in Nigeria’s lending ecosystem, which has led to an increasing reliance on debt and unsecured credit, is not unconnected to many economic factors.
Analysts at Proshare say the factors driving the trend include persistent inflationary pressures, which have strained household finances despite an upward review of the minimum wage increase from N30,000 to N70,000 in 2024.
Others are the persistent depreciation of the naira as the currency, as it lost 40 per cent of its value in the first half of 2024 and lost 43 per cent of its value by the end of the year as one of the worst-performing currencies on the African continent.
This has also resulted in a rise in both borrowing and operational costs for businesses.
Another factor, according to Proshare analysts, is the elevated lending rates, which makes it difficult for borrowers to meet repayment obligations.
Going by these, the analysts predict that current credit conditions will persist into the first quarter (Q1) of 2025, as there are indications that both public and private sector budget deficits may continue to drive reliance on debt financing.
Data reveals banks borrowed N131.42 trillion from CBN in 2024 to meet business obligations
Meanwhile, TheRadar earlier reported that data released by the Central Bank of Nigeria (CBN) showed that deposit money banks (DMBs) and merchant banks borrowed N131.42 trillion from the apex bank in 2024 to meet their daily business obligations.
According to the data, the amount borrowed in 2024 is 636.6 per cent higher than the N17.84 trillion borrowed by Nigerian banks in 2023.
