Economic Uncertainties Temper Corporate Real Credit Growth
With a struggling private sector, Nigeria’s macroeconomic dislocation has tempered real credit growth on the back of the hawkish pose of the Central Bank. Instead, Nigeria’s consumer credit outstanding surged by 26.29 per cent to N4.42 trillion in November 2024, up from N3.5 trillion in October, according to the latest Monthly Economic Report from the Central Bank of Nigeria (CBN).
Top big companies have shown preference for commercial paper raises as borrowing from banks becomes expensive. The monetary policy inflation fighting triggered a significant hike in the benchmark interest rate with little impact on the consumer price index. In its latest purchasing manager index produced by Stanbic IBTC, cost pressures were identified as the main drag on private sector growth.
Nigerian banks loan portfolios surged in the third quarter of the financial year 2024. The increase was bolstered by loan repricing rather than new loans, analysts said. S&P Global said in the 2025 outlook that the naira depreciation inflated the amount of loans in 2023 and 2024, with nominal loan growth of 50%-60%, but real loan growth has been muted.
“We forecast that loan growth will average 25%-30% in 2025,” S&P Global said, noting that increased refinery capacity will support lending to the oil and gas sector. Analysts are of the view that the recapitalisation of the banking sector will increase banks’ lending firepower.
Reflecting uncertainties, the global rating agency said Nigeria’s household and corporate leverage metrics are among the lowest of the country’s peer group. The firm expressed that the country’s low wealth levels per capita and a large informal economy contribute to low financial intermediation.
The CBN increased the benchmark interest rate to 27.50% in 2024. The monetary policy tightening persisted to year end ahead of first meeting in 2025. The outlook for the policy rate depends on the outcome of the National Bureau of Statistics (NBS) consumer price index rebasing plan, analysts said.
The struggling Nigerian companies have continued to boycott borrowing to increase production capacities due to widespread poverty that has reduced household buying power.
Though banks loan portfolios have become heavy due to interest rate adjustment and naira devaluation, there have been strong reductions in new loan collections, a credit risk officer (CRO) of one of the top banks told MarketForces Africa. “We expect credit losses for the sector will remain elevated in 2025 at about 2.5%-3.0% compared with an estimated 3.0%-3.5% in 2024,” S&P said.
Banks impairment credit charges on loans have increased strongly since the policy tightening commenced. This was as a result of pressures on borrowers renegotiating for loan extension. Some banks have also recorded increased default on loans.
“The elevated credit losses reflect the currency depreciation, as foreign currency loans account for 50% of banks’ loan books on average,” S&P Global said in its outlook for Nigerian banks. Analysts noted that the banking system’s dollarization has increased following the depreciation of the naira in 2023 and 2024.
In addition, high interest rates and inflation have exerted pressure on borrowers’ creditworthiness, particularly for corporates in nonessential consumer goods sectors and import-dependent corporates that cannot fully pass through the high cost of inflation to consumers.
“We anticipate nominal nonperforming loan (NPL) stock to increase by 14%, while the NPL ratio will likely decrease slightly to about 3.8% in 2025 from an estimated 4.3% in 2024 because of the increase in gross loans”, S&P said. Oil Prices Increase amidst Shipping Routes Threats