Financial institutions across Nigeria are grappling with a significant increase in customers failing to repay their loans, highlighting mounting pressures within the nation's credit market. This troubling trend is unfolding even as banks expand their lending activities and demand for credit from both individuals and corporations continues to rise.
Widespread Defaults Across Loan Types
Data from the Central Bank of Nigeria's (CBN) Credit Conditions Survey for the fourth quarter of 2025 reveals a clear deterioration in repayment performance. The report indicates that default rates climbed for all major lending categories, including secured loans, unsecured loans, and corporate credit facilities.
Lenders explicitly reported higher default rates across the board during this period. Analysts point to a combination of harsh economic realities as the primary driver: persistently high interest rates, stagnant or declining real incomes for households, and escalating operational costs for businesses are squeezing borrowers from all sides.
For households, the ability to service unsecured personal loans, overdrafts, and credit card debts has been severely undermined by inflation, which erodes disposable income. While defaults on secured loans also increased, the situation for unsecured household credit was notably worse.
Corporate Sector Under Severe Strain
The business landscape is equally challenging. Small and medium-sized enterprises (SMEs) are reporting higher loan defaults as they battle a trifecta of high energy costs, sluggish consumer demand limiting sales, and a constrained ability to pass increased costs onto customers. Large corporations are not immune; they are contending with volatility in the foreign exchange market and the rising cost of servicing existing debt, which is impacting their repayment capacity.
Significantly, the survey noted that other financial institutions also experienced an uptick in defaults. This interconnection suggests that financial stress is not isolated but is spreading through different parts of the economic system, indicating broader systemic pressure.
Rising NPLs and Central Bank Assurance
In a separate assessment, the CBN confirmed that the banking sector's non-performing loan (NPL) ratio climbed to approximately 7% in 2025. This figure exceeds the regulatory benchmark of 5% and is attributed partly to the conclusion of special forbearance measures introduced during the COVID-19 pandemic. Loans that were previously restructured under these relief programmes are now being reclassified as non-performing.
Paradoxically, this rise in bad loans occurred during a quarter where banks increased the overall supply of credit, and demand for loans grew as households and businesses sought funds to manage cash flow difficulties. However, the high cost of borrowing made eventual repayment more difficult for many.
Despite these concerns, the Central Bank has moved to reassure the public and markets about the health of the financial system. Authorities emphasize that Nigerian banks remain on a stable footing, bolstered by strong liquidity positions, robust capital buffers, and solid interest income. The ongoing bank recapitalisation programme and digital transformation efforts are also cited as key factors underpinning this resilience.
Nevertheless, the CBN issued a clear warning: a continued sharp deterioration in loan quality could eventually weaken banks' financial positions and pose a risk to the overall stability of Nigeria's financial system. The situation underscores the delicate balance between supporting economic growth through credit and maintaining the integrity of the banking sector.
