ABUJA, Nigeria (VOICE OF NAIJA)-Banks in Nigeria have recorded a widespread increase in loan defaults among households and businesses, signalling rising pressure in the credit market despite improved loan supply and stronger demand.
Findings from the Central Bank of Nigeria’s Credit Conditions Survey for the fourth quarter of 2025 show that lenders experienced higher default rates across secured, unsecured and all categories of corporate lending during the period.
The survey indicates a deterioration in borrowers’ repayment capacity as elevated interest rates, weak consumer earnings and rising operating costs continue to constrain economic activity.
“Lenders reported higher default rates for Secured, Unsecured, and all Corporate lending types in Q4 2025,” the report stated.
It added that default rates on secured loans increased further in the quarter, with lenders reporting a net balance of minus 2.2 points.
READ ALSO: FG Budget N10m For Abuja Runway After Rejecting N532bn Proposal
Although this represented an improvement compared with the more severe negative readings seen in parts of 2023 and early 2024, banks said repayment difficulties persisted even for collateral-backed loans, underscoring the extent of financial strain facing borrowers.
Defaults in unsecured household lending also worsened, with a net balance of minus 3.0 points during the quarter.
This segment remained particularly exposed as inflation and tight financial conditions continued to erode disposable incomes, making it harder for households to service personal loans, overdrafts and credit card obligations.
Corporate borrowers were similarly affected, with small businesses posting a net default balance of minus 3.9 points, reflecting sustained pressure from high energy costs, weak demand and limited pricing power.
Medium-sized private non-financial corporations recorded a net balance of minus 3.8 points, while defaults among large private non-financial corporations deepened to minus 6.0 points, highlighting the impact of foreign exchange volatility and rising debt servicing costs on larger firms.
Other financial corporations also reported higher default levels, with a net balance of minus 6.2 points, suggesting that stress within parts of the financial system is spilling over into inter-institutional exposures.
The rise in defaults occurred despite improved credit availability during the quarter.
Banks reported an expansion in the supply of secured, unsecured and corporate loans, driven by shifts in economic outlook and market-share considerations.
“Lenders reported increased credit availability for Secured, Unsecured, and Corporate lending in Q4 2025,” the report noted.
Credit demand also strengthened across most segments, as the survey stated that “The demand for credit increased for Secured, Unsecured, and Corporate lending.”
However, the combination of stronger credit demand and rising defaults points to a widening gap between borrowing needs and repayment capacity.
Many households and businesses are relying on credit to manage cash flow pressures, but high interest rates and subdued income growth are limiting their ability to service existing obligations.
The survey further showed that lending rates remained elevated, with spreads on secured and unsecured household loans widening further relative to the Monetary Policy Rate, increasing effective borrowing costs and compounding repayment challenges during the quarter.
The Central Bank clarified that the Credit Conditions Survey reflects the views of participating lenders and does not represent the official position of the apex bank.
In 2025 Nigeria’s banking sector recorded a rise in bad loans following the withdrawal of regulatory forbearance granted to lenders during the COVID-19 pandemic, according to the CBN’s latest macroeconomic outlook report.
The report showed that the banking industry’s Non-Performing Loans ratio rose to an estimated seven per cent, exceeding the prudential threshold of five per cent.
The CBN attributed the increase to the withdrawal of temporary relief measures introduced to cushion the pandemic’s impact on borrowers.
“The Non-performing Loans ratio stood at an estimated 7.00 per cent relative to the prudential limit of 5.00 per cent. The level of NPLs reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic,” the report said.
Regulatory forbearance had allowed banks to restructure pandemic-affected loans without immediately classifying them as non-performing. With its withdrawal, several restructured facilities have now materialised as bad loans, pushing the industry ratio above the regulatory ceiling.
Despite the increase in non-performing loans, the CBN said the financial system remained broadly stable in 2025, supported by stronger capital buffers and liquidity levels across the banking sector.
The liquidity ratio averaged 65 per cent, well above the 30 per cent minimum requirement, while the capital adequacy ratio stood at 11.6 per cent, exceeding the 10 per cent benchmark.
According to the apex bank, these indicators show that lenders retain sufficient capacity to absorb shocks, supported by strong interest income, ongoing digital transformation and the recapitalisation programme.
The CBN cautioned that a “significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” underscoring the need for close monitoring of credit risk and sustained prudential discipline.
It also advised deepening “the operational integration of the GSI framework across all financial institutions to enhance loan recovery efficiency and credit discipline.”
The apex bank added that improved repayment performance would strengthen MSME and retail credit outcomes, reduce operational losses and help banks build stronger capital buffers.