Personal loans owed by Nigerians to commercial banks dropped sharply from N7.52 trillion in the first quarter of 2024 to N3.47 trillion in the second quarter, reflecting a 53.9% decrease.
This significant decline is largely attributed to the impact of high interest rates, which have made borrowing more expensive and burdensome for many individuals.
This decrease in personal loans is highlighted in the latest Central Bank of Nigeria’s quarterly economic report for Q2 2024.
The sharp decline in personal loans, from N7.52 trillion in Q1 2024 to N3.47 trillion in Q2 2024, contrasts with the N5.49 trillion increase in personal loans during the first quarter. While the CBN’s report does not explicitly explain the drop, it is likely due to Nigerians repaying loans amid the challenges posed by higher interest rates.
This trend aligns with the CBN’s hawkish monetary policy, which has led to more expensive borrowing costs.
Personal loans, which made up 73.35% of total consumer credit, saw a significant shift in the second quarter of 2024. At the same time, retail loans increased from N0.72 trillion to N1.26 trillion, suggesting a change in borrowing patterns.
While individuals appear to be paying down personal loans, small businesses in the retail sector are increasingly relying on credit to cope with the high cost of doing business in Nigeria.
The CBN report read, “Consumer credit outstanding declined by 42.60% to N4.73 trillion in Q22024, relative to the level in the preceding quarter. Personal loans fell to N3.47 trillion, from N7.52 trillion in Q12024, but remained dominant accounting for 73.35% of the total consumer credit. Retail loans, however, grew to N1.26 trillion from N0.72 trillion in the preceding period.”
Under the leadership of Yemi Cardoso, the Central Bank of Nigeria has aggressively raised the Monetary Policy Rate five times in an effort to combat inflation and stabilize the economy.
The rate hikes began with an increase from 18.75% to 22.75%, followed by further raises to 24.75%, 26.25%, and 26.75%. Most recently, in September 2024, the Monetary Policy Committee (MPC) raised the MPR by 50 basis points, bringing it to 27.25%.
These consecutive hikes reflect the CBN’s attempt to curb inflation and stabilize the naira, though they also make borrowing more expensive for both consumers and businesses.
This tight monetary policy has contributed to the decline in personal loans and the shift in borrowing patterns, as individuals struggle with higher debt costs, while small businesses seek credit to cope with rising operational costs.
