Despite rising interest rates, Nigerians’ reliance on credit facilities has remained strong, with personal loan obligations to banks standing at N2.39trn as of January 2025.
The Central Bank of Nigeria, in its latest Economic Report for January 2025, revealed that personal loans accounted for 58.02 per cent of total consumer credit outstanding in the banking sector during the review period.
However, consumer credit outstanding contracted by 12.70 per cent to N4.12trn at the end of January 2025, compared to N4.72trn recorded in December 2024.
A breakdown of the consumer credit portfolio showed that retail loans stood at N1.73trn, accounting for the balance of 41.98 per cent.
The report read, “Consumer credit outstanding contracted by 12.70 per cent to N4.12trn, from N4.72trn at end-December 2024.
“A disaggregation of consumer credit showed that personal loans stood at N2.39trn, accounting for 58.02 per cent, while retail loans, at N1.73trn, accounted for the balance.”
The data highlights the increasing reliance of Nigerians on credit facilities to fund personal consumption needs at a time when real incomes are under severe pressure due to inflation and a rising cost of living.
The contraction in overall consumer credit reflects the impact of a tightened monetary policy environment, as the CBN continues to raise interest rates to combat inflation.
Nonetheless, the resilience of personal loans suggests that many individuals have little choice but to borrow to meet essential needs such as food, school fees, rent, healthcare, and transportation.
The January 2025 report also shed light on the broader credit distribution across the economy.
Total credit extended by Other Depository Corporations to major economic sectors declined by 1.05 per cent to N58.60trn at the end of January 2025, compared to N59.22trn in December 2024.
A sectoral analysis revealed that the services sector continued to dominate bank credit utilisation, accounting for 54.87 per cent of the total, while the industrial sector followed with 40.02 per cent.
The agricultural sector, though much smaller, showed an increase, rising to 5.11 per cent from 4.82 per cent in the preceding month.
The CBN attributed the growth in agricultural credit to ongoing government policy interventions aimed at improving food security and supporting agribusinesses.
Despite tightening credit conditions, the banking sector remained robust, with key performance indicators staying above regulatory thresholds.
According to the report, the industry’s capital adequacy ratio stood at 14.80 per cent in January 2025, slightly lower than the 15.20 per cent recorded in December 2024, but still comfortably above the 10.00 per cent regulatory minimum for banks with national and regional licences.
Asset quality improved marginally, with the non-performing loans ratio declining to 4.20 per cent in January 2025, compared to 4.50 per cent in the previous month.
This is still well below the prudential maximum of 5.00 per cent, indicating that banks have maintained good control over credit risk despite economic challenges.
The banking system’s liquidity ratio stood at 48.87 per cent in January, marginally down from 48.94 per cent in December 2024, but remained well above the minimum regulatory benchmark of 30.00 per cent.
This, the CBN noted, demonstrated banks’ strong capacity to meet their funding obligations and withstand liquidity pressures.
However, rising inflation and dwindling purchasing power continued to drive demand for personal loans.
Nigeria’s headline inflation rate stood at 24.48 per cent in January 2025, with food inflation climbing even higher.
The erosion of disposable income has left many households increasingly dependent on credit to fund daily expenses.
However, while personal loans provide a short-term financial buffer, they come at a significant cost.
With lending rates elevated, the burden of loan repayments could increase defaults if economic conditions fail to improve.
Also, the continued heavy reliance on consumer credit, particularly for non-investment purposes, could eventually put pressure on banks’ asset quality if household debt servicing capacity weakens.