The Central Bank of Nigeria revealed that lenders, including commercial banks and other financial institutions, experienced increased default rates on secured, unsecured, and corporate loans in the fourth quarter of 2024.
Credit default occurs when a lender fails to collect a payment on an outstanding debt.
The apex bank revealed the default rate in its Credit Conditions Survey Report for Q4 2024, which was made available on its website.
The report prepared by the apex bank’s Statistics Department and Economic Policy Directorate, highlighted an increase in loan approvals for secured and corporate loans, while approvals for unsecured loans saw a decline during the same period.
Similarly, the approval rate for secured and corporate loans increased, while the approval rate for unsecured loans decreased during the quarter under review.
During the period, the overall spreads on secured and unsecured lending rates to households relative to the Monetary Policy Rate widened.
For corporate lending, all types of lending spreads relative to the MPR also widened, except for Other Financial Companies, where the spread narrowed in the current quarter.
The report also noted that lenders reported increased credit availability for unsecured and corporate lending, while secured lending to households decreased during the period.
The CBN stated that the decrease in secured credit availability was mainly driven by a shifting economic outlook, while the increase in unsecured lending was attributed to market share objectives.
Secured lending refers to loans backed by collateral, such as a car, home, or other assets. These loans are typically less risky for lenders and come with lower interest rates.
The central bank noted that unsecured lending, which does not require collateral but relies on the lender’s ability to assess the borrower’s creditworthiness and cash flow, increased during the review period.
Unsecured credit includes personal loans for purposes such as home renovations, medical bills, and education expenses, but it typically carries higher interest rates.
On the other hand, corporate lending, which supports businesses and organizations and plays a crucial role in fostering business growth, saw an increase in Q4.
The report further indicated that demand for credit increased across all lending types in Q4 2024 compared to the previous quarter, with secured lending rising by 11.3%, unsecured lending by 6.7%, and corporate lending by 27.2%.
The CBN stated that the overall spreads on secured and unsecured lending rates to households relative to the MPR widened in Q4.
For corporate lending, it noted that spreads on all types of loans relative to the MPR also widened, except for OFCs, where the spread narrowed during the quarter.
“The report said, “The demand for credit across all lending types increased in Q4 2024.
“The factors influencing the increase for secured and unsecured household loans were consumer loans from households (32.3 per cent) and credit cards lending from households (15.7 per cent), respectively, while Inventory finance (24.5 per cent) was the major factor that influenced the change in demand for corporate lending.”
The CBN stated that the overall spreads on both secured and unsecured lending rates to households relative to the Monetary Policy Ratewidened in Q4.
