CBN Flags Rising Loan Defaults Among Large Corporates and Financial Institutions in Q1 2025
ABUJA, Nigeria — The Central Bank of Nigeria (CBN) has raised fresh concerns over rising credit risk in Nigeria’s financial sector, following a notable increase in loan defaults among Large Private Non-Financial Corporations (PNFCs) and Other Financial Corporations (OFCs).
This development was revealed in the CBN’s Credit Conditions Survey Report for Q1 2025, which shows that despite improved overall loan performance, Nigeria’s largest corporate borrowers and financial entities are now leading in repayment defaults.
Key Findings: Loan Defaults Rebound in Upper Lending Segment
According to the CBN’s report:
-
Large PNFCs and OFCs recorded negative default index scores of -0.6, signaling worsening repayment behavior.
-
This represents a sharp reversal from Q4 2024, when large corporates posted a default index of +4.3, and OFCs stood at +5.0.
-
In contrast, small and medium-sized firms recorded better performance, with positive default index scores of 0.5 and 3.0 respectively.
The default index measures the net balance of lender responses: a negative score means more lenders are seeing higher defaults than improvements in loan repayment.
“For corporate lending, Small businesses and Medium PNFCs reportedly had lower default rates, but Large PNFCs and OFCs had higher default rates,” the CBN report noted.
Corporate Debt Strain: Warning Signs for Credit Markets
The decline in credit quality among Nigeria’s top-tier borrowers could have significant implications for the banking system, as these entities typically hold the largest commercial credit exposures.
Experts warn that sustained repayment struggles in this segment could trigger:
-
Increased provisioning for non-performing loans
-
Tighter loan approval conditions
-
Widening interest rate spreads for large-ticket corporate loans
The trend may also reflect broader macroeconomic strain, such as foreign exchange instability, rising inflation, and weaker profit margins among capital-intensive firms.
SMEs and Households Show Stronger Repayment Trends
While large corporates face challenges, the report shows a more positive outlook for smaller borrowers:
-
Small businesses posted a +0.5 default index (though lower than Q4’s +9.0)
-
Medium-sized firms recorded +3.0, reflecting more consistent repayment
-
Household secured loans saw a +3.9 default index, while unsecured lending improved to +5.0
These figures highlight a continued rebound in the household and SME segments, which had previously struggled with high default rates during the 2022–2023 period.
Tighter Lending Standards Amid Higher Demand
Interestingly, while demand for loans—especially corporate and secured lending—increased during Q1 2025, banks simultaneously tightened credit scoring criteria.
-
Loan approvals rose for secured and corporate loans
-
Unsecured lending approvals declined, showing rising caution from lenders
Lenders also reported that spread over the Monetary Policy Rate (MPR) widened across most loan categories, indicating higher borrowing costs and risk-based pricing.
-
For households, both secured and unsecured loans became more expensive
-
For corporates, spreads widened—except for OFCs, which oddly saw a narrowing of spreads despite worsening default trends
This divergence may signal anticipation of improved liquidity or regulatory support for OFCs by some lenders.
Inventory Finance Drives Corporate Loan Demand
According to the report, one of the main drivers of increased corporate loan demand in Q1 2025 was the need for inventory financing. Businesses are borrowing more to stock up on goods, likely in anticipation of rising inflation or supply chain disruptions.
However, this demand hasn’t translated into better credit performance among large firms—adding to concerns over short-term liquidity stress and credit misalignment.
Implications for Financial Stability and Policy
The weakening loan performance among Nigeria’s top borrowers could affect:
-
Credit portfolio quality across banks
-
Regulatory stress testing
-
Capital adequacy ratios and provisioning levels
While gains in SME and household lending offer some relief, the deterioration in the upper lending tier threatens the overall health of Nigeria’s credit markets.
The CBN emphasized that the survey reflects lender sentiment and not its official stance. Nonetheless, the findings provide a critical window into credit dynamics and signal areas that may require policy tightening or strategic intervention.
Summary: What This Means for Nigeria’s Credit Landscape
-
Large firms and OFCs are now the weakest link in Nigeria’s lending market, showing worsening defaults in Q1 2025.
-
Household and SME borrowers are outperforming expectations, with better repayment behavior and stronger loan performance.
-
Lenders are tightening standards, raising spreads and becoming more selective—especially for unsecured lending.
-
Credit growth is being driven by inventory finance and rising consumer needs, but risks remain elevated.
-
Policymakers and financial institutions must stay alert to the fragile balance between risk and recovery in Nigeria’s evolving credit ecosystem.
0 Comments