Medium-scale businesses have emerged as the most vulnerable segment to loan defaults in Nigeria’s credit market, as persistently high interest rates continue to exert pressure on borrowers across the market, a financial expert has revealed.

Managing Director of Afrinvest Consulting Limited, Abiodun Keripe, stated this during an appearance on Channels TV when analysing the Central Bank of Nigeria’s (CBN) fourth-quarter 2025 survey, which showed a broad rise in loan defaults across households and businesses despite increased credit availability.

According to the CBN survey, medium enterprises recorded a default index of 3.8 points, making them the worst-hit category. Small businesses followed with 3.9 points, largely affected by energy costs and weak demand, while large corporations, though better positioned, still recorded six points, primarily due to foreign exchange (FX) volatility.

Households with unsecured loans registered three points.

The paradox of rising defaults amid increased credit availability has been attributed to the prohibitive cost of borrowing, with the monetary policy rate (MPR) hovering at 27.5 per cent for most of 2025 before a slight reduction.

“The MPR is the base lending rate. Your risk profile determines how far you are away from that MPR. If you’re a secured borrower or a large corporate, that means you’re closer to the MPR, and the spread is narrower. The farther away you are, the more expensive it is for you to borrow,” Keripe explained.

He noted that secured lenders, particularly large corporations, enjoy better pricing power with banks because they meet critical lending criteria, including transparency, clear cash flow visibility, credibility and strong collateral.

The five Cs of credit — character, capacity, capital, collateral and conditions — remained the benchmarks banks use to evaluate borrowers, with collateral being the last consideration after other factors are satisfied, he noted.

Keripe expressed surprise that medium-scale businesses are more exposed than small businesses, suggesting that banks maintain closer one-on-one relationships with small business owners, giving them better visibility into their operations and cash flows.

“Banks can maintain one-on-one relationships with small business owners, and that’s critical to loan approval processes and evaluating the risk attached to their business,” he said.

He noted that the uptick in defaults has been driven by multiple factors, including elevated interest rates, inflationary pressures, which peaked at 34.8 per cent before moderating to around 15 per cent and recurring FX challenges.

For banks, the situation presents both opportunities and challenges. While revenue growth remains secured through increased lending to large corporates and secured borrowers, lenders are now adopting more risk-based pricing models and tactical loan portfolio allocation.

“Banks need to think tactically about their loan book portfolio. You begin to see an increased allocation to the secured borrower at the expense of the retail, small business, or medium business segments,” Keripe said, adding that this means the vulnerable segments will face low access to credit and higher borrowing costs.

He called on policymakers to consider targeted interventions for different borrower segments, particularly small and medium-scale businesses that play a crucial role in economic growth.

“You cannot underplay the role of small businesses in an economy such as ours. We talk about the informal sector and how large that sector is. That’s a sector that still powers economic growth for the entire country,” he stressed.

Keripe noted that the current CBN administration appears more diligent in its approach and suggested a review of targeted risk-based pricing for different segments, learning from previous attempts at sector-specific lending interventions.