Nigeria’s banking sector expanded credit availability in the final quarter of 2025, even as financial institutions grappled with mounting loan defaults across consumer and business lending, according to data released by the Central Bank of Nigeria.
The apex bank’s Credit Conditions Survey for Q4 2025 paints a nuanced picture of the country’s lending landscape: cautious optimism among lenders counterbalanced by deteriorating loan quality, a dynamic that underscores the fragility of Nigeria’s economic recovery.
The survey reveals a tale of two borrowing markets. Nigerian households found themselves squeezed by widening interest rate spreads, with secured household loans carrying spreads of negative 10.8 index points below the Monetary Policy Rate, while unsecured loans registered spreads of negative 2.0 points. These figures indicate that household borrowers faced substantially higher costs relative to the benchmark rate.
In contrast, corporate borrowers received mixed treatment. Small businesses benefited from narrowed spreads of 14.8 index points, while large private non-financial corporations and other financial institutions saw spreads compress to 2.9 and 4.3 points, respectively. Medium-sized enterprises, however, encountered tighter conditions with spreads widening to negative 4.8 points—suggesting lenders view this segment with particular caution.
The expansion in credit availability came at a cost. Lenders reported increased default rates spanning all major lending categories—secured loans, unsecured consumer credit, and corporate facilities. The uptick in non-performing loans signals that many borrowers, buffeted by Nigeria’s persistent inflationary pressures and elevated operational costs, are struggling to meet repayment obligations.
This deterioration in loan quality presents a paradox for Nigeria’s banking sector: extending more credit even as existing portfolios show signs of stress. Industry observers suggest lenders may be betting on improved economic conditions while managing risk through selective credit expansion and tighter pricing for vulnerable segments.
The credit expansion follows the CBN’s September decision to cut its policy rate, a reversal after months of tight monetary conditions that constrained lending through much of 2025. Private sector credit climbed to N74.63 trillion in November, up from N74.41 trillion in October—an early indication that the rate reduction is beginning to influence lending behavior.
That modest uptick represents a potential turning point. For most of 2025, elevated interest rates and limited household disposable income restricted consumer borrowing, while businesses faced compressed margins from inflation and rising input costs. The CBN‘s targeted liquidity support measures had provided some relief, particularly for large corporations and small enterprises, but medium-sized businesses remained caught in a policy squeeze.
Despite the improved credit availability, Nigeria’s broader macroeconomic challenges continue to weigh on the financial sector’s outlook. Inflation remains stubbornly high, eroding purchasing power and constraining both consumer spending and business investment. Corporate borrowers face escalating operational expenses, from energy costs to foreign exchange volatility, factors that directly impact their capacity to service debt.
The CBN’s survey suggests the central bank is attempting a delicate balancing act: supporting economic activity through expanded credit while monitoring the deteriorating quality of existing loan books. Whether this approach can sustain momentum without triggering a broader banking sector problem will depend largely on the trajectory of inflation and the resilience of Nigeria’s private sector.
For now, the data indicates that Nigerian lenders are threading a narrow path—expanding access to credit in select segments while bracing for continued repayment challenges in an uncertain economic environment.
WHAT YOU SHOULD KNOW
Nigeria’s banks are caught in a high-wire act: they’re lending more money to households and businesses following the Central Bank’s September rate cut, but borrowers are defaulting at alarming rates across all loan categories. This creates a precarious situation—expanded credit is fueling short-term economic activity, but rising defaults threaten the stability of bank portfolios.
The critical question is whether Nigeria’s inflation and cost pressures will ease quickly enough to prevent these mounting defaults from snowballing into a broader banking crisis. For now, lenders are betting on economic improvement while bracing for continued pain.
