Nigerian banks recorded an unexpected rise in default rates on secured loans to households during the third quarter of 2025 (Q3 2025), even as overall credit availability increased across the financial system. This contradictory trend, revealed in the Central Bank of Nigeria’s (CBN) latest Credit Conditions Survey, suggests mounting economic stress among middle-class borrowers who hold collateralized debts, even as banks get better at managing lower-collateral risks. The survey report was released on Wednesday, November 19, 2025.
The CBN report showed a distinct divergence in household lending: default rates for secured lending (loans backed by assets like mortgages) rose during the review period. Surprisingly, however, default rates for unsecured lending (such as personal loans and credit cards) fell. Analysts suggest this decrease in unsecured default is primarily a result of banks leveraging new, stringent debt recovery mechanisms, such as the Global Standing Instruction (GSI), which compels repayment by drawing funds from debtors’ accounts across the banking system.
The rise in secured loan defaults indicates that the protracted high-inflation environment and currency depreciation are severely squeezing the disposable income of higher-earning borrowers who typically hold these large, collateralized loans. For these individuals, the rising cost of living may be forcing a choice to prioritize essential spending over loan repayments, despite the risk of losing their collateral, signaling a high level of economic distress in this segment. Furthermore, the difficulty and high cost banks face in successfully liquidating collateral in a depressed asset market may make the security less effective, further driving up the default risk.
Despite this risk, the CBN survey noted a general increase in credit availability in Q3 2025 for secured, unsecured, and corporate lending. Banks attributed the increased availability for secured and corporate lending to their own changing economic outlooks, suggesting a cautious willingness to lend despite prevailing macroeconomic uncertainty. The increased availability for unsecured credit was driven mainly by the banks’ changing appetite for risk, emboldened by the effectiveness of the GSI framework in mitigating losses.
In the corporate sector, the repayment picture was generally positive. Banks reported a decrease in default rates for all corporate lending segments, including Small Businesses, Medium-sized Private Non-Financial Corporations (PNFCs), and Large PNFCs. This suggests a mild stabilization in corporate liquidity compared to previous quarters.
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However, access to credit still comes at a premium. The survey indicated that the spreads (profit margins) on lending rates to households generally widened, meaning the cost of borrowing increased for consumers. In corporate lending, while spreads narrowed for Medium PNFCs and Other Financial Corporations (OFCs), they widened for Small Businesses and Large PNFCs.
This widening suggests that banks continue to price in higher perceived risk for large-scale projects and smaller businesses, even with the reported improvement in corporate repayment behavior. The overall finding highlights a banking sector that is cautiously expanding its loan books but remains highly selective and profitable, effectively transferring the risk of economic instability back to borrowers through higher interest rates.
