Loan defaults on the increase as monetary tightening bites

Small businesses are beginning to feel the weight of the Central Bank’s sustained monetary tightening. The latest CBN Credit Conditions Survey showed that loan defaults spiked across all borrower categories in the second quarter of 2025, with SMEs recording the sharpest drop in repayment performance.

The default index for SMEs fell from 0.5 to -7.2, while household secured loan defaults dropped from 3.9 to -7.0 —highlighting mounting repayment stress and liquidity strain.

According to Bismarck Rewane, Chief Executive Officer of Financial Derivatives Company (FDC), this development comes as the CBN held the Monetary Policy Rate at 27.5 per cent for the third consecutive meeting, maintaining its focus on inflation control amid persistent price pressures.

But the data suggest that the real economy—especially small firms operating on thin margins—is under growing strain.

The path ahead requires a careful balancing act—taming inflation without choking off the recovery. For a largely informal and consumption-driven economy, protecting small enterprises must be part of the policy calculus.

Nigeria’s economic reforms have received a major boost from the World Bank who reaffirms its commitment to private sector growth.

But the World Bank is in full support of the reform. Ms Kant, who led a senior delegation to Abuja, described Nigeria as a cornerstone of the World Bank’s Africa strategy and praised the government’s bold macroeconomic reforms, including foreign exchange liberalisation and subsidy removal, for restoring investor confidence and laying the foundations for inclusive, private sector–driven development.

“Nigeria’s reform momentum is both necessary and commendable.

“We stand ready to accelerate our support, particularly in energy, digital access, and youth employment, the pillars of a competitive, future-facing economy,” she noted.

Rewane also said Nigeria’s quest for a $1 trillion economy hinges not just on attracting capital, but on attracting the right kind of capital. While Foreign Portfolio Investment (FPI) has surged—reaching $8.05bn in Q1 2025 alone—it remains volatile and short-term in nature, driven by interest rates and investor sentiment.

Blueprint