Nigerian corporates are increasingly turning to the short-term capital market for funding as high interest rates make traditional borrowing channels, particularly bank overdrafts and long-term debt, far more costly.
Over the past three years, the Central Bank of Nigeria (CBN) has sustained a hawkish monetary policy stance, holding the Monetary Policy Rate (MPR) at a record 27.5% after successive hikes from 11.5% in 2022.
This has resulted in elevated borrowing costs across the financial system.
Treasury bill yields crossed the 25% mark in 2024, while bond yields surged to 19%, pushing the cost of capital to historic highs.
The consequence has been a surge in banking sector earnings. An analysis of ten listed banks revealed a combined N4.8 trillion post-tax profit in 2024, a 53.5% rise from the previous year, supported by a 38% expansion in loan books to N51.4 trillion. Yet, corporates have borne the brunt, struggling to fund operations and long-term investments.
Data from the FMDQ Securities Exchange shows a sharp pivot in funding strategy. Between January and July 2025, corporates issued N1.58 trillion worth of commercial papers (CPs), compared to N763.4 billion in the same period of 2024. This figure already exceeds last year’s total issuance by 37%.
Conversely, corporate bond issuances remain weak, with only N129 billion raised so far in 2025, compared to N69.1 billion in 2024 and N390.9 billion in 2023. Market analysts attribute this preference for CPs to their short-term nature, which allows businesses to avoid long-term exposure to elevated borrowing costs.
“Companies with access to the capital market and with brand equity to command investors’ interest are managing debt sustainability by relying on short-dated instruments while waiting for interest rates to ease. It is a defensive strategy,” said Samuel Oyekanmi, Research and Insights Lead at Norrenberger Financial Group.
Nigeria’s inflation has cooled in recent months, easing for four consecutive readings to 21.88% in July 2025. Despite this, the CBN has adopted a cautious stance, citing risks to both inflation and exchange rate stability.
Fixed income yields, which had been tapering since early 2025, have risen slightly in recent weeks as the market priced in the central bank’s “wait-and-see” approach. Investors are now watching the upcoming September MPC meeting, where analysts expect a modest cut of 25–50 basis points, depending on August inflation figures due from the National Bureau of Statistics.
Even with potential monetary easing, experts caution that corporates may not immediately return to the bond market. The consensus is that commercial papers will remain attractive until rates normalize further in 2026.
The trend highlights a fundamental shift in corporate funding strategies. With overdrafts and long-term borrowing proving unsustainable under Nigeria’s high-interest environment, businesses are leaning on commercial papers as a practical stopgap.
Until monetary conditions ease substantially, short-term debt will remain the corporate financing instrument of choice in Nigeria’s evolving credit landscape.