Rising Interest Rates Slow Commercial Paper Issuances in Nigeria
Key Insights from H2 2024:
1️⃣ Sharp Decline in Issuances:
• Commercial paper (CP) issuances have plummeted to N165.8 billion since July 2024, an 83% drop from the N972 billion recorded in the second half of 2023.
2️⃣ Year-on-Year Trends:
• In H1 2024, CP issuances dropped 37% year-on-year, from N797 billion in H1 2023 to N503 billion, signaling a steady decline.
3️⃣ Sectoral Impacts:
• Dangote Cement, the largest issuer, raised N54.1 billion in H2 2024, compared to N219.6 billion in the same period of 2023.
• Other key issuers include TGI Foods (N28.99 billion) and Dufil Prima Foods (N28.62 billion).
4️⃣ Interest Rate Dynamics:
• Issuers are offering rates above 23%, driven by competition with government-issued securities like Treasury bills and OMO bills with rates up to 24.32%.
• The Central Bank of Nigeria’s (CBN) hawkish monetary policy has raised the Monetary Policy Rate (MPR) to 27.25%, inflating borrowing costs across markets.
5️⃣ Challenges for Borrowers:
• Bank lending rates range from 26% to 48%, making both capital market and bank financing increasingly expensive.
• Businesses in manufacturing, retail, and real estate are scaling back on expansions due to unaffordable credit costs.
6️⃣ Economic Concerns:
• The tightening financial environment is raising alarms over long-term growth prospects, as high borrowing costs deter investments and corporate expansion plans.
Conclusion:
The rising cost of borrowing, fueled by elevated interest rates, has significantly reduced CP issuances, forcing Nigerian companies to reassess their financing strategies. This trend raises concerns about broader economic implications as businesses navigate a challenging monetary landscape.
What’s Next?
Can the CBN strike a balance between curbing inflation and supporting business growth? Share your thoughts!
Key Insights from H2 2024:
1️⃣ Sharp Decline in Issuances:
• Commercial paper (CP) issuances have plummeted to N165.8 billion since July 2024, an 83% drop from the N972 billion recorded in the second half of 2023.
2️⃣ Year-on-Year Trends:
• In H1 2024, CP issuances dropped 37% year-on-year, from N797 billion in H1 2023 to N503 billion, signaling a steady decline.
3️⃣ Sectoral Impacts:
• Dangote Cement, the largest issuer, raised N54.1 billion in H2 2024, compared to N219.6 billion in the same period of 2023.
• Other key issuers include TGI Foods (N28.99 billion) and Dufil Prima Foods (N28.62 billion).
4️⃣ Interest Rate Dynamics:
• Issuers are offering rates above 23%, driven by competition with government-issued securities like Treasury bills and OMO bills with rates up to 24.32%.
• The Central Bank of Nigeria’s (CBN) hawkish monetary policy has raised the Monetary Policy Rate (MPR) to 27.25%, inflating borrowing costs across markets.
5️⃣ Challenges for Borrowers:
• Bank lending rates range from 26% to 48%, making both capital market and bank financing increasingly expensive.
• Businesses in manufacturing, retail, and real estate are scaling back on expansions due to unaffordable credit costs.
6️⃣ Economic Concerns:
• The tightening financial environment is raising alarms over long-term growth prospects, as high borrowing costs deter investments and corporate expansion plans.
Conclusion:
The rising cost of borrowing, fueled by elevated interest rates, has significantly reduced CP issuances, forcing Nigerian companies to reassess their financing strategies. This trend raises concerns about broader economic implications as businesses navigate a challenging monetary landscape.
What’s Next?
Can the CBN strike a balance between curbing inflation and supporting business growth? Share your thoughts!
