The Nigerians borrowed an N470 billion Nairas Nairas from personal loans to banks during the last quarter of 2024, highlighting an increasing dependence on credit as economic difficulties deepened across the country.
The Central Bank of Nigeria (CBN) revealed it in its economic report of the fourth quarter 2024, revealing a significant increase in consumer credit, mainly driven by personal loans.
The report indicated that consumer credit in circulation had jumped 11.06%, from 4.25 Billions of Nairas at the end of September 2024 to 4.72 billions by December 2024. A more in -depth examination of data showed that personal loans were the main engine of this increase, the leap of 21.27% in the quarter to reach N3322, compared to N3.15 at the end of the N3,82.
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The sharp increase in personal loans has reduced concerns earlier than the arrow interest rates of Nigeria would dissuade the borrowing from banks. Instead, development suggests that many Nigerians have no choice but to ask for loans to survive, even at higher loan costs. Financial experts believe that this increase is a sign of pressed expenditure power, with more people with loans to meet the basic needs.
While personal loans have experienced substantial growth, retail loans, which include credit facilities for businesses and consumer purchases, have greatly decreased by 18.18%. The retail loans went from 1.10 Billion de Nairas in September 2024 to 0.90 Billion de Nairas in December, indicating that companies and entrepreneurs reduce the loan, perhaps due to high interest rate and economic uncertainty.
The CBN report indicated: “Consumer credit in progress increased by 11.06% to 4.72 Billions of Nai Tillion at the end of September 2024. Ventilation indicated that personal loans, with a share of 80.98%, remained dominant, while retail loans took into account the balance. »»
The report also pointed out that personal loans represented 80.98% of the total consumer credit portfolio, a clear indication that more people turn to loan as a financial rescue. The sharp increase in personal loans reflects a disturbing reality in the Nigeria economy – the discharge of household income and persistent inflation have left many citizens of other choice than to seek credit to maintain themselves.
The increase in inflation and stagnant wages have eroded purchasing power, which makes it more and more difficult for individuals to afford the basic necessities. This has forced a lot to rely on personal loans to cover expenses such as rent, school fees, medical invoices and even daily subsistence.
The continuous increase in personal loans comes at a time when the loan has become more and more expensive due to high interest rates. Throughout 2024, the CBN maintained a position of monetary policy tight in order to limit inflation, which remains one of the largest economic challenges in the country.
At the end of December 2024, the Nigeria inflation rate increased to 34.80%, against 34.60% recorded in November. The increase in inflation was largely motivated by increased demand during the holiday season, especially for food and non -alcoholic drinks. To combat inflationary pressures, the CBN monetary policy committee has implemented several rate increases throughout the year, increasing the monetary policy rate (MPR) of a total of 875 base points to 27.50% in 2024.
Higher interest rates generally discourage the loan, as the cost of reimbursement of loans increases. However, the latest CBN data show that despite these rate increases, the demand for personal loans has continued to increase. This suggests that economic difficulties have reached a point where people are ready to grant expensive loans just to survive.
While banks adjust their loan rates to reflect the highest MPR, the cost of the loan has skyrocketed. People who contract personal loans today face much higher reimbursement obligations, further deepening their financial expenses. However, for many, the lack of alternatives leaves them no choice but to borrow at all costs.
Economic implications of the increase in personal loans
Economists note that the sharp increase in personal loans in the midst of the economic difficulties of Nigeria raises serious concerns concerning financial stability. Although access to credit can provide short -term reductions, reality is that borrowing at high interest rates could create long -term financial distress for individuals and households.
A major concern is the risk of increasing non -efficient loans (NPL). While more and more Nigerians are contracting personal loans to survive, reimbursement difficulties are likely to increase, potentially leading to higher defect rates. If individuals find it difficult to comply with the reimbursement obligations, banks can start to undergo an increase in poor loans, which could threaten the stability of the financial sector.
Another problem is the impact on consumer overall expenses. Personal loans being used for basic needs rather than for productive investments, the economy may have trouble growing at the expected rate. As a rule, increased loan should fuel economic expansion, but when loans are mainly used for survival, economic growth remains low.
At the same time, the sharp drop in retail loans suggests that businesses and entrepreneurs retain the loan, perhaps due to the high cost of credit. If companies are unable to access affordable loans, investment and expansion plans could be delayed, further slowing economic recovery.
