Loan defaults worsened across all major borrower categories in the second quarter of 2025, with small businesses emerging as the most vulnerable group.
This is according to the latest Central Bank of Nigeria (CBN)’s Credit Conditions Survey (CCS) for Q2.
The report, based on lender responses compiled in June 2025, shows a marked reversal in repayment trends despite improved credit access across the board.
It read, “Lenders reported higher default rates for Secured and Unsecured lending in the review quarter. For Corporate lending: Small businesses, Medium PNFCs, Large PNFCs and OFCs similarly recorded higher default rates.”
Small businesses recorded the most severe deterioration in loan performance, with their default index falling to -7.2 in Q2 2025 from 0.5 in Q1 — the steepest quarterly decline among all borrower types.
Medium-sized Private Non-Financial Corporations (PNFCs) followed with a score of -4.9, while large PNFCs and Other Financial Corporations (OFCs) reported negative balances of -4.8 and -4.7, respectively.
This across-the-board decline in the default index suggests that broader economic or liquidity challenges continue to weigh on repayment capacity, particularly for business entities.
Defaults widen despite increased credit availability
The uptick in loan defaults came even as banks continued to ease credit conditions in the review quarter. The report shows that lenders increased the availability of credit for secured, unsecured, and corporate loans in Q2 2025. For secured and corporate loans, this expansion was driven by an improved economic outlook. In contrast, the increased availability of unsecured credit was largely influenced by a changing appetite for risk among lenders.
However, this greater access to funds did not translate into improved credit performance. In fact, the rise in defaults indicates that borrowers may have overextended themselves or that underlying economic conditions, such as inflation or low consumer spending , continue to create stress on cash flow and repayment ability. The survey results suggest that lenders are now navigating a more delicate balance between credit growth and credit quality.
Households also buckle under pressure
While the spotlight is on corporate borrowers and SMEs, household borrowers also exhibited signs of strain in Q2. The index score for defaults on secured loans to households dropped significantly from 3.9 in Q1 to -7.0 in Q2, indicating a substantial rise in missed payments or loan restructuring. Similarly, the default index for unsecured household loans declined from 5.0 in Q1 to -1.5, marking the first negative shift in this category in over a year.
These figures point to increasing pressure on household income and repayment capacity, likely driven by persistent inflationary trends and high cost of living. While the demand for personal loans and overdrafts increased during the quarter, appetite for longer-term obligations like mortgages and credit cards continued to weaken, suggesting a more cautious consumer stance.
Despite the spike in defaults, banks approved more loans in Q2 2025 across all major categories. According to the survey, the proportion of loan approvals rose for secured, unsecured, and corporate lending compared to the previous quarter. This suggests that lenders remain confident in their risk assessment models or are strategically expanding portfolios amid competitive pressure.
In terms of pricing, the report shows a divergence in lending conditions. For households, the spreads on secured and unsecured loan rates over the Monetary Policy Rate (MPR) widened, meaning consumer loans became relatively more expensive. In contrast, corporate lending spreads narrowed in Q2, indicating more favourable pricing for businesses, possibly to support investment or working capital needs.
