Nigerians reduced their personal loan debts significantly in the second quarter of 2024, repaying a total of N4.05 trillion and bringing the outstanding balance down to N3.47 trillion from N7.52 trillion in the first quarter. This marks a substantial 53.9% decline in personal loans, according to the Central Bank of Nigeria’s (CBN) latest quarterly economic report.
Decline in Consumer Credit
The drop in personal loan balances contributed to a 42.6% decrease in total consumer credit, which fell from N8.24 trillion in the first quarter to N4.73 trillion by the end of the second quarter. Despite the reduction in personal loans, retail loans saw an increase, climbing from N0.72 trillion to N1.26 trillion, indicating that smaller-scale businesses are borrowing more to cope with high operational costs.
This shift reflects the pressures of rising interest rates on individuals and businesses alike. With personal loans comprising 73.35% of total consumer credit, the significant repayment trend suggests that Nigerians are responding to increased borrowing costs by prioritizing debt repayment.
Rising Interest Rates and Economic Impact
Under Governor Yemi Cardoso, the CBN has raised the Monetary Policy Rate (MPR) multiple times to control inflation, moving from 18.75% to 27.25% within a year. These hikes, totaling an increase of 850 basis points, are part of a strategy to combat inflation by reducing excess liquidity in the economy. However, this has made borrowing more expensive for Nigerians, contributing to the repayment surge observed in the latest report.
A recent CBN survey revealed that 71.4% of Nigerians now favor a reduction in interest rates due to concerns over the cost of borrowing, while only 12.5% support further increases. This sentiment highlights widespread anxiety over the economic strain posed by high-interest payments.
Fitch Ratings and Non-Performing Loans
Global credit agency Fitch Ratings projects an increase in non-performing loans among Nigerian banks due to the high interest rates and persistent inflation. As of the first quarter of 2024, the non-performing loan rate was 5.1%, and Fitch expects this figure to rise by year-end, further complicating the financial landscape for both lenders and borrowers.
Policy Outlook
With inflation pressures continuing, the CBN is expected to maintain its restrictive monetary stance in upcoming Monetary Policy Committee (MPC) meetings, scheduled for November 25-26, 2024. Governor Cardoso acknowledged the “painful” nature of the current high rates but reaffirmed their necessity to stabilize the economy and control inflation.
This trend of paying down personal loans amid elevated interest rates underscores Nigerians’ cautious approach to debt as they navigate the current economic challenges.
