Personal loans owed by Nigerians to commercial banks fell from N7.52 trillion in the first quarter of 2024 to N3.47 trillion in the second quarter of the year as Nigerians continue to face high interest rates on their debts.
This is according to the latest CBN’s quarterly economic report for Q2 2024, which was obtained by Nairametrics.
According to the report, personal loan balances dropped from N7.52 trillion in the first quarter to N3.47 trillion in the second quarter, marking a 53.9% decrease.
This is in sharp contrast to the N5.49 trillion added in the first quarter of 2024.
- While the central bank report did not explain the reason for the decline, the data points to a likely repayment of the loans by Nigerians as Nigerians continue to grapple with higher interest rates following the apex bank’s hawkish monetary policy. Decrease in consumer credit
- This is reflected in the overall drop in consumer credit outstanding by 42.6% to N4.73 trillion in Q2 2024.
- Personal loans accounted for 73.35% of total consumer credit, while retail loans increased from N0.72 trillion to N1.26 trillion, indicating a shift towards smaller-scale credit facilities.
- This further means that while individuals are paying off their debts, small businesses in the retail sector are forced to borrow more to survive the high cost of doing business in the country.
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.”
What you should know
The apex bank, under Yemi Cardoso, increased the monetary policy rate (MPR) five times to combat inflation and foster economic stability.
- The first hike increased the rate from 18.75% to 22.75%, the second to 24.75%, the third to 26.25%, the fourth to 26.75%, and most recently in September 2024, the Monetary Policy Committee (MPC) raised the rate by 50 basis points to 27.25%.
- These increases, totalling 850 basis points since Cardoso’s appointment, have been driven by efforts to tackle the country’s persistent inflation challenges, which include high core and food inflation.
- In its latest credit ratings report on Nigeria, the global credit ratings agency, Fitch Ratings projected that non-performing loans of Nigerian banks will increase in 2024 on the back of high interest rates and inflation in the country.
It noted: “Fitch expects the banking sector’s regulatory non-performing loans (end-1Q24: 5.1%) to increase in 2024 due to high inflation and interest rates. However, loan books are small (end-2023: 35% of banking sector assets).”
According to the September 2024 Inflation Expectations Survey by the CBN, not less than 71.4% of Nigerians are calling for a reduction in interest rates amid growing concerns about inflation and economic hardship.
- The survey, which included 1,750 businesses and 1,665 households from 36 states and the Federal Capital Territory, indicated a significant preference for lower interest rates.
- Only 12.5% of respondents supported an increase in rates, while 16.1% preferred the rates to remain unchanged.
- This overwhelming majority favouring a reduction in rates reflects widespread concerns about the cost of borrowing and its impact on business and household expenditures.
- While the Governor of the CBN, Yemi Cardoso, recently acknowledged that the rise in the interest rate to 27.25% is “painful” for borrowers, he noted that the decision is necessary to reduce excess money in circulation and control inflation effectively.
The CBN will hold its next MPC meeting from November 25-26, 2024. It is expected that the committee will continue to increase the MPR as high inflation persists.