Loan defaults worsened across all major borrower categories in the second quarter of 2025, with small businesses emerging as the most vulnerable group, according to the Central Bank of Nigeria’s (CBN) latest Credit Conditions Survey (CCS) for Q2.
Compiled from lender responses in June 2025, the report reveals a sharp deterioration in repayment performance despite broader improvements in credit availability.
Rising Defaults Across Borrower Categories
The survey notes, “Lenders reported higher default rates for secured and unsecured lending during the review quarter. Small businesses, medium and large Private Non-Financial Corporations (PNFCs), and Other Financial Corporations (OFCs) all experienced increased default rates.”
Small businesses recorded the steepest decline, with their default index plunging from 0.5 in Q1 to -7.2 in Q2 — the most significant quarterly drop among all borrower groups. Medium-sized PNFCs followed with a default score of -4.9, while large PNFCs and OFCs registered -4.8 and -4.7 respectively.
This across-the-board decline underscores ongoing economic and liquidity pressures constraining repayment capacities, particularly among business borrowers.
Defaults Rise Despite Easier Credit Conditions
Interestingly, the rise in loan defaults occurred even as banks eased credit conditions across secured, unsecured, and corporate lending in Q2. Increased credit availability for secured and corporate loans was largely driven by an improved economic outlook, whereas unsecured credit expanded due to lenders’ shifting risk appetite.
However, the expanded access to credit did not translate into better loan performance. The increase in defaults suggests borrowers may be overleveraged or continue to face economic headwinds such as inflation and subdued consumer spending, which strain cash flows and repayment ability. Lenders now face a challenging balancing act between pursuing credit growth and maintaining quality.
**Household Borrowers Also Under Pressure**
Household borrowers showed signs of stress as well. Defaults on secured household loans worsened sharply, with the index falling from 3.9 in Q1 to -7.0 in Q2, indicating a rise in missed payments and loan restructuring. Defaults on unsecured household loans also turned negative for the first time in over a year, dropping from 5.0 in Q1 to -1.5 in Q2.
These trends reflect growing pressures on household incomes amid persistent inflation and rising living costs. While demand for personal loans and overdrafts increased, appetite for longer-term credit products like mortgages and credit cards weakened, signaling consumer caution.
**Loan Approvals and Pricing Trends**
Despite the rise in defaults, banks approved more loans in Q2 across all major categories, pointing to sustained confidence in risk management or strategic portfolio expansion amid competitive pressures.
Regarding pricing, the report highlights diverging trends: consumer loan spreads over the Monetary Policy Rate (MPR) widened for both secured and unsecured loans, making personal credit more expensive. Conversely, spreads for corporate lending narrowed, offering more favorable rates to businesses—likely aimed at supporting investment and working capital needs.
