High Interest Rates Suppress Corporate Bond Issuance in Nigeria, Pension Fund Investments Dip
Nigeria’s soaring interest rates are taking a toll on corporate bond issuance, with pension fund investments in corporate debt declining slightly, industry data reveals. According to analysts, the high cost of borrowing has made companies hesitant to issue bonds, leaving investors with fewer options beyond government securities. As of August 2025, pension fund holdings in corporate bonds fell 1% year-on-year to N2.2 trillion, reflecting this slowdown.
FBNQuest Merchant Bank noted in a recent analysis that the Central Bank of Nigeria’s (CBN) tight monetary policy over the past two years has elevated borrowing costs. “High yields in government securities have made it more expensive for corporations to issue bonds. Companies are reluctant to borrow at double-digit rates, especially when revenues are under pressure from inflation and rising costs,” the bank said. The current interest rate sits at 27%, making debt financing challenging for many firms.
While the CBN’s rate hikes have helped stabilize the foreign exchange market and curb excess liquidity, analysts warn that weaker corporate bond issuance could constrain private-sector growth. With fewer companies able to access affordable long-term capital, expansion and job creation across key industries may be limited. “When firms issue fewer bonds, it restricts their ability to fund major projects or expand operations. This slows private-sector growth and job creation,” analysts added.
Government debt continues to dominate pension fund portfolios, accounting for over 60% of total assets under management. FGN securities, particularly bonds, grew 17% year-on-year to N15.7 trillion, highlighting the sector’s preference for stability over higher-risk corporate debt. Experts argue that overreliance on sovereign borrowing crowds out private-sector financing and underscores the need for a deeper, more liquid corporate bond market.
However, there are signs of a potential turnaround. The CBN’s 50-basis-point rate cut in September, the first in nearly two years, signals the start of a possible monetary easing cycle. Analysts predict that lower borrowing costs could encourage companies to issue bonds again and give pension funds the opportunity to diversify. “With interest rates expected to ease further, we anticipate a gradual rebound in corporate bond issuance, improving funding access for firms and supporting broader economic activity,” FBNQuest said.
source: The sun