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Daniel Adaji
The Central Bank of Nigeria (CBN) has raised alarms over increasing loan defaults by some of the country’s largest borrowers—specifically Large Private Non-Financial Corporations (PNFCs) and Other Financial Corporations (OFCs)—in its latest Credit Conditions Survey for Q1 2025.
The apex bank’s report shows a reversal in repayment trends among these top-tier borrowers, with both segments recording a negative default index score of -0.6. This development comes despite an overall improvement in loan performance across other borrower categories.
According to the report, “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 negative index suggests that more lenders observed worsening defaults among these entities than those that reported improvements, signalling growing repayment stress among large borrowers—traditionally the most credit-exposed and systemically significant.
This marks a sharp contrast to the previous two quarters, where large corporates had posted healthier default scores—4.3 in Q4 2024 and 4.9 in Q3.
OFCs, likewise, had shown strong repayment performance with scores of 5.0 and 6.8 in the same periods. The current figures point to weakening debt servicing capabilities at the upper end of the market.
In contrast, small and medium-sized businesses demonstrated greater loan discipline. Small businesses posted a default index of 0.5, while medium PNFCs reported an even stronger score of 3.0—both signaling better repayment behaviours.
This performance aligns with broader lending patterns indicating improved access to credit and higher loan approvals for SMEs, likely driven by stricter underwriting standards and stronger business cash flows.
Household lending also remained resilient in Q1 2025. Secured loans recorded a default index of 3.9, while unsecured household loans came in at 5.0. These gains reflect a continued recovery from the distress seen in 2022 and early 2023.
On the policy front, the survey noted that while demand for credit increased—particularly for corporate and secured loans—lenders responded by tightening credit scoring requirements. This was evident in the declining approval rates for unsecured loans, despite steady appetite from borrowers.
Additionally, pricing of credit became more aggressive. Loan spreads over the Monetary Policy Rate (MPR) widened for both household and corporate loans—except in the case of OFCs, which saw a narrowing of spreads.
This may hint at efforts by lenders to maintain relationships with OFCs despite their rising risk profile, possibly in anticipation of improved liquidity or regulatory support.
While the survey is based on responses from participating lenders and doesn’t represent the official position of the CBN, it offers a critical pulse on credit sentiment and risk trends within Nigeria’s financial ecosystem.
The apex bank noted that the decline in loan performance among major borrowers could lead to stricter credit conditions, increased provisioning by banks, or more cautious lending practices, potentially influencing monetary policy and financial stability decisions in the quarters ahead.