Small Business Credit Demand Jumps 26.5% As Banks Ease Lending – CBN

Demand for credit by small businesses in Nigeria jumped by 26.5 index points in the second quarter of 2026 as banks reported higher approval rates for household and corporate loan applications, according to the Central Bank of Nigeria (CBN).

The development indicates an improvement in credit conditions during the quarter, although borrowing costs moved in different directions across households, small businesses and larger companies.

The findings were contained in the CBN’s latest quarterly Credit Conditions Survey, which tracks developments in household and corporate lending, credit demand, loan pricing and default rates across the banking industry.

According to the survey, banks reported an increase in the proportion of approved applications for secured household loans, unsecured household loans and corporate credit during the period.

This suggests that borrowers generally had a better chance of obtaining financing in the second quarter than in the preceding quarter.

The improvement in credit availability also coincided with lower reported default rates across major household and corporate lending categories.

Lenders reported declines in defaults on both secured and unsecured household loans as well as among small, medium and large businesses.

However, the improved availability of credit did not result in a uniform reduction in borrowing costs, highlighting differences in lending conditions across various categories of borrowers.

Demand from small businesses recorded the strongest increase during the quarter, rising by 26.5 index points.

Demand from medium-sized private non-financial companies also increased substantially by 25.5 points, while demand from large companies rose by 8.9 points.

The increase in corporate borrowing demand reflects continued financing needs among businesses seeking funds for inventory, capital investment and balance-sheet restructuring, which banks identified as key drivers of corporate credit demand during the quarter.

Despite stronger demand and improved access to financing, the lending-rate spread for small businesses widened to minus 3.8 index points.

The CBN’s diffusion-index methodology means the figure reflects the direction of movement reported by lenders relative to the benchmark policy rate.

In contrast, lending-rate spreads narrowed for some medium and large corporate borrowers, indicating that the movement in borrowing costs was not uniform across the business sector.

The survey also showed that households increased their demand for several categories of credit during the quarter. Consumer-loan demand rose by 11.2 index points, while demand for house-purchase lending increased by 9.6 points.

Mortgage and remortgage demand rose by 13.3 points, while demand for overdrafts and personal loans increased by 7.9 points.

Credit-card demand, however, declined by 2.0 points.

Pricing conditions for household borrowers also moved in different directions.

The spread on unsecured household lending narrowed to 7.8 index points, while the spread on secured household lending widened to minus 4.5 index points.

These figures represent the direction of pricing movements reported by lenders and do not indicate the actual interest rates paid by borrowers.

The improvement in credit conditions comes as Nigeria continues to navigate the effects of monetary policy tightening and efforts to strengthen the banking sector through recapitalisation.

The recently completed bank recapitalisation exercise has strengthened the capital base of lenders, with the policy expected to improve banks’ capacity to support economic activity through increased lending to businesses and households.

The challenge, however, remains translating stronger bank balance sheets into affordable and productive credit, particularly for small businesses that rely heavily on bank financing to fund working capital, inventory and expansion.

The latest CBN findings also come amid growing competition from fintech companies and mobile-money operators, which have expanded access to digital lending, particularly for smaller and unsecured loans.

While increased competition could improve access to credit, the affordability of loans remains a critical consideration for borrowers because a higher approval rate does not necessarily mean that financing has become cheaper.

Households taking loans may need to consider interest rates alongside management fees, insurance charges, repayment schedules and penalties when assessing the overall cost of credit.

Businesses, meanwhile, need to ensure that the returns generated from investments financed through borrowing are sufficient to cover financing costs and support profitability.

The CBN’s quarterly Credit Conditions Survey captures the views of participating lenders and provides an indication of trends in credit demand, loan approvals, pricing and defaults.

It does not mean that every bank increased loan approvals or that every borrower benefited from lower interest rates.

The second-quarter results nevertheless point to a broader improvement in access to bank credit, with small businesses emerging as the strongest source of additional demand, even as differences in lending costs continue to shape the borrowing experience across Nigeria’s households and corporate sector.