Ayodeji Ebo, Managing Director of Optimus by Afrinvest, has attributed the recent surge in commercial paper (CP) issuances to the high cost of borrowing from banks.
Speaking on Talkonomics, a Naijaonpoint finance show, Ebo explained that rising interest rates have forced many companies to explore alternative funding sources like the capital markets.
When asked why more companies are turning to CPs to meet working capital needs and fund projects, Ebo said:
“Going to the bank to borrow money with rates around 30% is not sustainable. That’s why companies are turning to the capital markets instead.”
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He pointed to the Central Bank’s increase in the Cash Reserve Ratio (CRR) to 50%, which requires commercial banks to keep half of all customer deposits with the CBN.
According to him, this policy is reducing the amount of money banks have available to lend, creating pressure to charge higher interest rates to cover their margins.
“If a bank receives N1 billion in deposits aiming to make 20% from it, it must keep N500 million with the CBN. That leaves just N500 million to work with,” he explained. “To stay profitable, the bank needs to earn closer to 40% overall—so lending rates go up.”
Ebo also noted that a rush to issue CPs in the first half of 2025 may have been accelerated by a new policy requiring companies to seek SEC review and approval before issuing such instruments.
He said firms may have fast-tracked their plans ahead of the July enforcement, as the new process could be more rigorous and time-consuming.
In a circular issued in December 2024, the Securities and Exchange Commission (SEC) set new rules for companies and SPV promoters that want to raise short-term funds by issuing Commercial Paper (CP).
For CP targeted at retail investors, stricter rules apply.
The SEC also wants to ensure that only creditworthy companies can issue CP.
Still, companies that do not meet all the conditions may be allowed to issue CP if they have a strong guarantor.
According to an analysis by Naijaonpoint, there has been a rush for Commercial Papers (CPs) in 2025 as companies turn to the capital market for short-term funding.
The amount being offered varies widely, from as little as N3 billion to as much as N193 billion.
The amount being offered varies widely, from as little as N3 billion to as much as N193 billion.
Several other companies joined the wave, including FSDH Merchant Bank, C & I Leasing, Stanbic IBTC, Dangote Sugar, Dangote Cement, and Addosser Microfinance Bank.