Naira slide may trigger loan defaults, squeeze businesses – Financial expert warns
A financial expert, Busari Akande, has warned that the naira’s depreciation could increase loan defaults, weaken business operations and restrict access to credit in Nigeria.
Akande, a Fellow of the Institute of Credit Administration, FICA, said the naira’s continual decline at the Nigerian Autonomous Foreign Exchange Market, NAFEM, at the beginning of November could have wider implications for businesses and the banking sector.
He said although the 0.12 per cent daily depreciation might appear insignificant, its effects could compound existing financial pressures on businesses already struggling with high borrowing costs and rising operational expenses.
In an analysis titled “Unmasking the Naira’s November Shuffle: A Dual Lens on Credit Risk and Financial Resilience”, Akande explained that import-dependent companies, particularly those in manufacturing and consumer goods, could face higher raw material costs and shrinking profit margins.
He warned that the situation could undermine companies’ ability to repay loans, forcing some to seek additional short-term financing to meet operational needs rather than invest in expansion.
The Islamic finance and credit administration expert also expressed concern that currency depreciation could weaken household purchasing power and reduce the capacity of individuals to repay personal loans, mortgages and other credit facilities.
According to him, small and medium-scale enterprises, SMEs, which have limited access to currency hedging instruments, are particularly vulnerable to exchange-rate fluctuations.
Akande further warned that banks’ preference for investing in government securities with attractive returns could reduce funds available for private-sector lending, making it more difficult for businesses to access financing.
However, he said Nigeria’s foreign exchange reserves, which he put at $55.22 billion, and the narrow gap between official and parallel market exchange rates provided buffers against a major financial crisis.
He urged banks and credit administrators to strengthen loan monitoring, conduct regular stress tests against possible exchange rates of N1,450 to the dollar and identify vulnerable borrowers before they default.
Akande also advocated restructuring loans for viable businesses experiencing temporary cash-flow difficulties through measures such as extending repayment periods and granting principal repayment moratoriums.
He said the naira’s movement should not trigger panic but should prompt financial institutions and corporate managers to adopt more proactive risk-management measures to protect businesses and sustain economic activity.
