Nigerians' Personal Loan Debts Drop 53.9% Amid High Interest Rates in Q2 2024

Personal loans owed by Nigerians to commercial banks fell sharply from N7.52 trillion in the first quarter of 2024 to N3.47 trillion in the second quarter, a 53.9% decrease, as citizens continue to face high interest rates on their debts. This data was revealed in the Central Bank of Nigeria’s (CBN) quarterly economic report for Q2 2024, obtained by Nairametrics.

The report marks a stark contrast to the N5.49 trillion increase in personal loan balances recorded in Q1 2024. Although the CBN did not provide specific reasons for the decline, it suggests that many Nigerians may be repaying their loans as they grapple with the impact of rising interest rates driven by the CBN’s hawkish monetary policies.

Drop in Consumer Credit

The overall decline in consumer credit reflects broader economic challenges. Consumer credit outstanding dropped by 42.6% to N4.73 trillion in Q2 2024, down from the previous quarter. Personal loans continue to dominate, accounting for 73.35% of total consumer credit.

At the same time, retail loans saw a significant increase, rising from N0.72 trillion to N1.26 trillion during the same period, indicating a shift towards smaller-scale credit facilities. This suggests that while individuals are paying off larger debts, small businesses in the retail sector are borrowing more to cope with rising operational costs.

According to the CBN report, “Consumer credit outstanding declined by 42.60% to N4.73 trillion in Q2 2024, relative to the level in the preceding quarter. Personal loans fell to N3.47 trillion, from N7.52 trillion in Q1 2024, but remained dominant, accounting for 73.35% of total consumer credit. Retail loans, however, grew to N1.26 trillion from N0.72 trillion in the preceding period.”

Impact of Rising Interest Rates

The sharp decline in personal loan balances coincides with a series of interest rate hikes by the CBN under the leadership of Governor Yemi Cardoso. To combat inflation and stabilize the economy, the Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) five times since 2024 began.

The first increase took the MPR from 18.75% to 22.75%.
Subsequent hikes followed, with rates rising to 24.75%, 26.25%, and 26.75%.
Most recently, in September 2024, the MPC raised the rate again by 50 basis points to 27.25%.

These cumulative increases, totaling 850 basis points, aim to tackle Nigeria’s persistent inflation, which includes both core and food inflation. However, the higher borrowing costs have led to a significant reduction in personal loan demand and repayment of outstanding debts.

Concerns Over Non-Performing Loans and Inflation

In its recent credit ratings report, Fitch Ratings projected that non-performing loans (NPLs) in Nigerian banks will rise in 2024 due to the ongoing inflationary pressures and high interest rates. Fitch noted that regulatory NPLs had already reached 5.1% by the end of Q1 2024, and the firm expects them to increase further as economic challenges persist.

Despite this, loan books remain relatively small, making up only 35% of the banking sector’s total assets at the end of 2023.

Public Opinion on Interest Rates

According to the CBN’s September 2024 Inflation Expectations Survey, a large majority of Nigerians are calling for a reduction in interest rates. The survey, which included 1,750 businesses and 1,665 households across the 36 states and the Federal Capital Territory, revealed that 71.4% of respondents prefer lower interest rates due to concerns over inflation and the high cost of borrowing.

Only 12.5% of respondents supported further increases, while 16.1% wanted rates to remain unchanged. This overwhelming preference for lower rates reflects the financial strain that high borrowing costs have placed on both households and businesses.

While Governor Yemi Cardoso acknowledged that the 27.25% interest rate is “painful” for borrowers, he defended the decision, stating that it was necessary to reduce the amount of money in circulation and control inflation effectively.

Looking Ahead

The CBN’s next Monetary Policy Committee (MPC) meeting is scheduled for November 25-26, 2024. With inflation still high, many analysts expect the MPC to continue raising interest rates to stabilize the economy, despite growing calls for relief from borrowers.