Businesses buckle under debt as loan defaults push bad loans to N21.2 trillion
Nigerian banks are facing mounting pressure from a sharp rise in loan defaults by businesses, with the value of non-performing loans (NPLs) climbing to N21.2 trillion, reflecting the growing strain on companies amid persistent economic headwinds.
Industry data show that worsening macroeconomic conditions — including high inflation, rising interest rates, foreign exchange volatility and weak consumer demand — have made it increasingly difficult for businesses to service their debts. As a result, banks’ bad loan portfolios have expanded significantly, raising concerns about asset quality and financial stability within the banking sector.
Analysts say many firms, particularly in manufacturing, trade, construction and services, are struggling with higher operating costs and declining margins. The removal of fuel subsidies, elevated energy prices and tighter monetary policy have compounded cash-flow challenges, pushing more borrowers into default.
“The current environment is extremely tough for businesses,” said a banking analyst in Lagos. “With borrowing costs at multi-year highs and revenues under pressure, many companies are prioritising survival over debt repayment, which is feeding directly into rising non-performing loans.”
The increase in bad loans has forced banks to make higher loan-loss provisions, weighing on profitability and constraining their ability to extend new credit to the private sector. Some lenders have responded by tightening credit conditions, raising collateral requirements and focusing more on government securities, further limiting access to finance for businesses.
Regulatory authorities have continued to monitor the situation closely. The Central Bank of Nigeria (CBN) has repeatedly warned banks to strengthen risk management practices and ensure adequate capital buffers to absorb potential shocks from deteriorating loan books.
Despite the challenges, industry watchers note that Nigerian banks remain broadly resilient, supported by relatively strong capital adequacy ratios and improved regulatory oversight. However, they caution that a prolonged period of economic stress could deepen loan defaults if growth does not pick up and inflationary pressures persist.
Economists argue that easing the burden on businesses will require macroeconomic stability, improved access to foreign exchange, and targeted policies to stimulate production and consumer demand. Without such measures, they warn, rising debt distress among businesses could continue to weigh on banks and slow overall economic recovery.
