By Chinwendu Obienyi,Rapheal

Copyright thesun

By Chinwendu Obienyi

Corporates in Nigeria are increasingly turning to the commercial paper (CP) market to fund operations, as elevated interest rates render traditional borrowing channels and long-term debt unsustainable, Daily Sun investigations can reveal.

A commercial paper, traded in the capital market, is like an IOU. The company promises to pay back the money (plus a little interest) within a short period, usually 30 to 270 days.

CPs allow firms to get funds more cheaply and flexibly to cover things like working capital, raw material purchases or short-term obligations and the N1.58 trillion shows that companies are increasingly bypassing traditional bank loans and relying more on the capital market to meet their funding needs.

Fresh data from the FMDQ Securities Exchange shows that between January and July 2025, companies raised N1.58 trillion through CPs, more than double the N763.4 billion issued in the same period last year.

The figure also surpasses the full-year 2024 total by 37 per cent, highlighting a decisive shift in corporate financing strategies.

The surge in CP issuance comes against the backdrop of the Central Bank of Nigeria’s (CBN) sustained hawkish monetary policy stance. Since 2022, the CBN has raised the Monetary Policy Rate (MPR) from 11.5 per cent to a record 27.5 per cent.

This has translated into steep borrowing costs across the financial system, with Treasury bill yields now above 25 per cent and bond yields near 19 per cent.

While this environment has boosted banking sector profitability, it has left corporates squeezed. An analysis of 10 listed banks showed a combined post-tax profit of N4.8 trillion in 2024, a 53.5 per cent year-on-year increase, supported by strong loan growth.

By contrast, companies have struggled to balance soaring funding costs with the need to finance operations, investments, and working capital.

Research and Insights Lead at Norrenberger Financial Group, Oyekanmi Samuel, said 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. According to him, “this is a defensive strategy”.

Corporate bond issuance, meanwhile, came in weak. Firms raised just N129 billion in bonds in the first seven months of 2025, compared with N69.1 billion in the same period last year and N390.9 billion in 2023.

Analysts attribute the development to the slowdown/reluctance of corporates to lock in high borrowing costs over a long horizon.

The CP market, by contrast, offers short-term relief. With maturities typically ranging from 90 to 270 days, CPs allow businesses to roll over obligations as needed while avoiding long-term exposure to the current rate environment.

Nigeria’s inflation dynamics provide some hope of easing pressures. Headline inflation slowed for a fourth consecutive month to 21.88 per cent in July 2025, down from its peak earlier in the year. Yet, the CBN has remained cautious, pointing to risks around exchange rate stability and imported inflation.

Fixed-income yields, which had been moderating since early 2025, have edged higher in recent weeks as investors priced in the central bank’s wait-and-see approach. Attention is now on the September Monetary Policy Committee (MPC) meeting, where analysts expect a modest 25–50 basis point rate cut if August inflation data confirms the downtrend.

Still, experts caution that any policy easing is unlikely to spark an immediate revival of the bond market.

Head, Research at FSL Securities, Chiazor Victor, said, “Even if rates come down slightly, the spread between short-term and long-term funding remains unattractive for corporates. CPs will likely stay dominant until at least 2026”.

Other analysts warn, however, that the heavy reliance on short-term debt could create refinancing risks if rates remain higher for longer.

“Commercial papers help businesses survive today, but they don’t solve tomorrow’s funding challenge. If inflationary pressures resurface or foreign exchange volatility intensifies, rollovers could become more expensive, exposing firms to liquidity strain”, Fixed income strategist at Afrinvest Securities Olubunmi Adekeye, said.

Similarly, Lagos-based investment analyst, Kehinde Ogundipe, argued that the trend signals broader structural weaknesses in Nigeria’s credit markets. “The CP boom highlights a gap in the availability of medium- to long-term financing for businesses. It may sustain operations, but it does little for capital investment and expansion, which the economy badly needs for growth,” he said.

However, Chief Investment Officer, Lotus Capital, Aisha Bello, thinks that the surge in CP activity reflects growing investor confidence in Nigerian corporates and deepening of the domestic capital market. “It shows that despite macroeconomic challenges, companies can still access funding outside the traditional banking system, which is healthy for market diversification”, Bello said.

The trend underscores a structural adjustment in Nigeria’s corporate funding landscape. With overdrafts and long-dated borrowing proving unsustainable, companies are increasingly reliant on short-term debt to weather a high-rate environment that shows little sign of abating in the near term.