In the second quarter of 2024, Nigerians repaid an impressive N4.05 trillion in personal loans, marking a significant shift in the nation’s financial landscape. This information, reported by The PUNCH, draws from the Central Bank of Nigeria’s quarterly economic report. The large repayment saw personal loan balances plummet from N7.52 trillion in the first quarter to N3.47 trillion, a dramatic decline of 53.9%. This phenomenon aligns with the Central Bank of Nigeria’s (CBN) strategic monetary policy adjustments aimed at mitigating inflation and regulating the money supply. The figures indicate that a substantial portion of the loans taken out earlier in the year is being repaid, showcasing Nigerians’ responsiveness to the evolving economic conditions.
In the first half of 2024, banks and other financial institutions disbursed approximately N5.49 trillion in personal loans, resulting in a remarkable repayment rate of 74% for loans taken in the first quarter. This trend can partly be attributed to the CBN’s decision to hike interest rates, which has made borrowing significantly more expensive. As a result, consumers are prioritizing the repayment of existing debts over the acquisition of new loans. This behavioural shift is further reflected in an overall decline in consumer credit, which dropped by 42.6% to N4.73 trillion in the second quarter. Personal loans, which constituted 73.35% of total consumer credit, illustrate a shift in borrowing trends—while many individuals are focused on paying off debts, small businesses, particularly in the retail sector, are increasingly turning to credit to manage escalating operational costs.
The Central Bank’s report indicates that personal loans took a significant hit, dropping to N3.47 trillion from N7.52 trillion in the previous quarter. Interestingly, although personal loans saw a substantial decrease, retail loans experienced an increase, climbing from N0.72 trillion to N1.26 trillion. This shift could suggest that while consumers are working to alleviate personal debt burdens, businesses may be feeling compelled to expand their borrowing in light of the challenges posed by inflation and a tough business environment. The implications of these trends highlight a complex interplay between personal debt management and the resilience of small businesses operating in Nigeria’s economic climate.
Under the leadership of Yemi Cardoso, the CBN has adopted a robust approach to combat inflation, evidenced by multiple interest rate hikes throughout 2024. Beginning with an adjustment from 18.75% to 22.75%, the rates have continued to rise, reaching 27.25% as of September 2024. Totaling an adjustment of 850 basis points during Cardoso’s tenure, the rationale behind these increments revolves around addressing Nigeria’s high core and food inflation levels. This consistent response aims to stabilize the economy, but it poses significant challenges for borrowers who are feeling the pressure from increased interest rates.
The ongoing economic conditions have raised concerns within the banking sector, with Fitch Ratings predicting a rise in non-performing loans amidst escalating interest rates and persistent inflation. As the current regulatory non-performing loan ratio hovers around 5.1%, Fitch anticipates further increases due to the deteriorating economic environment. This situation highlights the potential strains on banking institutions as the costs of borrowing soar. Many are bracing for possible tumult within the banking sector due to these clamoring financial dynamics, focusing on the need for effective risk management and consumer support strategies.
Public sentiment reveals a pressing desire for change, with a recent CBN inflation expectations survey indicating that over 71.4% of Nigerians advocate for a reduction in interest rates amid growing economic distress. Among the surveyed population—including businesses and households—only a minority expressed support for rate increases. This widespread call for lower rates underscores a collective concern regarding the high cost of borrowing and its adverse effects on both home and business finances. Despite acknowledging the painful nature of interest rate hikes, Cardoso maintains that these actions are critically necessary for tackling inflation and controlling the proliferation of money within the economy, setting the stage for future fiscal discussions as the next Monetary Policy Committee meeting approaches on November 25-26, 2024.
