The Central Bank of Nigeria (CBN) has expressed concern over a sharp increase in loan defaults by large private companies and Other Financial Corporations (OFCs), signaling growing risks in the upper segment of the credit market.
In its Credit Conditions Survey for Q1 2025, the CBN reported negative default index scores of -0.6 for both large corporations and OFCs. This means more lenders saw worsening defaults than improvements—a significant drop from the positive default trends recorded in late 2024. Large firms had previously scored 4.3 and 4.9 in Q4 and Q3 of 2024, while OFCs had posted even higher scores of 5.0 and 6.8.
The CBN warned that this decline in loan performance among key borrowers could pose broader risks to the financial sector. These large entities hold a major share of commercial loans, making their credit health vital to the system’s stability.
In contrast, smaller businesses showed signs of improvement. Small firms recorded a modest positive default index of 0.5, while medium-sized companies performed better with a score of 3.0—suggesting a gradual recovery. These gains were attributed to more disciplined lending practices and increased credit access for smaller enterprises.
Households also continued to recover, with secured loans showing a default index of 3.9 and unsecured loans rising to 5.0. Demand was driven largely by overdrafts and personal loans, although interest in mortgages and credit cards remained low.
Despite strong credit demand across sectors, lenders tightened their loan approval standards in early 2025, especially for unsecured loans. Secured and corporate loans, however, saw more approvals. A key reason for borrowing was inventory financing, reflecting growing business needs amid ongoing economic challenges.
Loan pricing trends also shifted. Most borrowers saw wider interest rate spreads over the Monetary Policy Rate (MPR), especially in the household segment. Interestingly, OFCs experienced narrower spreads despite higher default rates—suggesting that some lenders may still see potential for recovery or expect regulatory support.
The CBN noted that the report reflects views from participating lenders and does not represent its official position. Still, the findings offer valuable insight into the state of credit risk and lending sentiment at the start of 2025.
While improvements among small businesses and households offer some hope, rising defaults among big firms and OFCs could lead to tighter lending conditions and more cautious banking practices in the months ahead.