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Governor, Central Bank of Nigeria, Dr. Olayemi Cardoso
Nigerians repaid N4.05tn in personal loans during the second quarter of 2024, according to findings by The PUNCH.
In the latest quarterly economic report of the Central Bank of Nigeria, The PUNCH observed that this repayment reduced personal loan balances from N7.52tn in the first quarter to N3.47tn in the second quarter, marking a 53.9 per cent decrease.
This trend coincides with the CBN’s monetary policy adjustments aimed at curbing inflation and controlling money supply.
The PUNCH observed that Nigerians took about N5.49tn as personal loans from banks and other financial institutions in the first six months of this year.
It means that Nigerians have repaid about 74 per cent of the fresh personal loans taken in Q1 2024 as the CBN hiked interest rates.
The increased interest rates have made borrowing more expensive, prompting consumers to focus on repaying existing debts rather than incurring new ones.
This is reflected in the overall decline of consumer credit outstanding by 42.6 per cent to N4.73tn in the second quarter.
Personal loans accounted for 73.35 per cent of total consumer credit, while retail loans increased from N0.72tn to N1.26tn, indicating a shift towards smaller-scale credit facilities.
This further means that while individuals are paying off their debts, small businesses in the retail sector are forced to borrow more to survive the high cost of doing business in the country.
The CBN report read, “Consumer credit outstanding declined by 42.60 per cent to N4.73tn in Q22024, relative to the level in the preceding quarter. Personal loans fell to N3.47tn, from N7.52tn in Q12024, but remained dominant accounting for 73.35 per cent of the total consumer credit. Retail loans, however, grew to N1.26tn from N0.72tn in the preceding period.”
The apex bank, under Yemi Cardoso, increased the monetary policy rate five times to combat inflation and foster economic stability.
The first hike increased the rate from 18.75 per cent to 22.75 per cent, the second to 24.75 per cent, the third to 26.25 per cent, the fourth to 26.75 per cent, and most recently in September 2024, the Monetary Policy Committee raised the rate by 50 basis points to 27.25 per cent.
These increases, totalling 850 basis points since Cardoso’s appointment, have been driven by efforts to tackle the country’s persistent inflation challenges, which include high core and food inflation.
In its latest credit ratings report on Nigeria, the global credit ratings agency, Fitch Ratings has projected that non-performing loans of Nigerian banks will increase in 2024 on the back of high interest rates and inflation in the country.
It stated, “Fitch expects the banking sector’s regulatory non-performing loans (end-1Q24: 5.1 per cent) to increase in 2024 due to high inflation and interest rates. However, loan books are small (end-2023: 35% of banking sector assets).”
According to the September 2024 Inflation Expectations Survey by the CBN, not less than 71.4 per cent of Nigerians are calling for a reduction in interest rates amid growing concerns about inflation and economic hardship.
The survey, which included 1,750 businesses and 1,665 households from 36 states and the Federal Capital Territory, indicated a significant preference for lower interest rates.
Only 12.5 per cent of respondents supported an increase in rates, while 16.1 per cent preferred the rates to remain unchanged.
This overwhelming majority favouring a reduction in rates reflects widespread concerns about the cost of borrowing and its impact on business and household expenditures.
Although Cardoso, recently acknowledged that the rise in the interest rate to 27.25 per cent was “painful” for borrowers, he stressed that the decision was necessary to reduce excess money in circulation and control inflation effectively.
The next MPC meeting is scheduled for November 25-26, 2024, as the CBN will likely keep raising interest rates amid rising inflation.
