Nigerian companies are increasingly turning to short-term debt instruments to navigate soaring borrowing costs fueled by record-high interest rates. Firms issued a staggering ₦1.8 trillion ($1.2 billion) in short-term notes maturing in less than a year between June 2024 and June 2025, compared to just ₦197.3 billion raised in longer-term bonds spanning two to seven years, according to data from FMDQ, Nigeria’s leading financial market tracker.
Analysts say the trend reflects companies’ reluctance to lock in long-term debt at double-digit yields, which would significantly increase financing costs. “Long-term borrowing at today’s yields would trap firms in very expensive debt,” explained Chika Mbonu, CEO of KSBC Advisory Partners Ltd. He added that long-term issuance could rebound once inflation stabilises and investor confidence in monetary policy strengthens.
The Central Bank of Nigeria (CBN) has raised its benchmark interest rate by 16 percentage points over the past three years, bringing it to 27.5% in a bid to curb inflation. This tightening cycle has been driven largely by a 73% depreciation of the naira against the dollar, which continues to pressure prices. In addition, the CBN hiked banks’ cash-reserve ratio to 50% in September, forcing lenders and corporates alike to seek cheaper short-term funding options.
Currently, yields on corporate short-term notes stand at about 25%, notably lower than the 30.1% interest charged on comparable bank loans. This has made commercial papers an attractive option for businesses. Financial services companies such as Access Holdings Plc, Stanbic IBTC Holdings Plc, and FSDH Merchant Bank Ltd. accounted for more than half of issuances, while other major issuers included MTN Nigeria, Dangote Cement, and Lagos Free Zone Co.
Market experts believe high interest rates are likely to persist in the near term, limiting long-term borrowing appetite. “Interest rates are expected to remain elevated for the rest of the year. At best, we may see a modest cut of about 25 to 50 basis points in the monetary policy rate,” said Ayodeji Ebo, Managing Director at Optimus by Afrinvest. Until then, Nigeria’s corporate sector is expected to rely heavily on short-term debt to manage liquidity while avoiding costly long-term obligations.
Source: Business day