The great credit shift: Why commercial papers are replacing bank loans in Nigeria

The great credit shift: Why commercial papers are replacing bank loans in Nigeria

It is becoming increasingly clear that corporate borrowers are snubbing traditional bank loans.

If you’re wondering why, the answers aren’t far-fetched. Chief among them is the cost of capital: in a bid to hedge against stubborn inflation, the Central Bank of Nigeria (CBN) has held its benchmark interest rate at a staggering 26.5%.

This aggressive stance has triggered a massive domino effect, forcing the financial ecosystem to rapidly restructure and pivot.

Faced with locked bank vaults, savvy corporate issuers have found a found a willing partner in financial disintermediation. Bypassing banks entirely and working with issuing houses and dealers to raise short-term capital directly from institutional and retail investors, with programmes structured, book-built, and quoted on the FMDQ Exchange.

While Tier-1 investment-grade issuers continue to dominate volumes, mid-cap manufacturers, logistics firms, credit-focused fintechs and microfinance institutions are also tapping the market, pooling wholesale funding that they then redeploy into their own retail lending books.

The appeal is straightforward. CP programmes typically clear at a meaningful discount to prevailing bank overdraft rates, translating into real savings on interest expense for issuers running sizeable shelf programmes.

The market also rewards speed: once a master CP shelf is registered, a treasurer can market, book-build, and fund an issuance within days, avoiding the weeks of underwriting and audit that a conventional bank facility demands.

The new issuers entering the market

This shift has also widened who gets to use the debt market. CP issuance is no longer the exclusive preserve of blue-chip multinationals. Non-bank financial institutions, specialised microfinance banks, and digital lenders are increasingly running their own CP programmes, using the capital market to fund balance sheets that would otherwise depend on expensive bank lines or scarce equity capital.

On the buy side, demand has been just as enthusiastic. Pension fund administrators and asset managers, under constant pressure to preserve positive real returns for contributors, have found CPs an attractive haven relative to bank fixed deposits, even after accounting for the withholding tax now applied to CP interest income. That steady institutional appetite has, in turn, made it easier for issuers to price and roll over their programmes.

Retail investors are not left out either, traditional issuing houses like Vetiva and fintech platforms such as GetEquity now provide easy buy-in for their clients and users.

The CP boom is an ingenious survival mechanism for corporate Nigeria, but it carries real risk. Unlike bank loans, commercial papers are not backed by collateral, they are simply a corporate promise to pay. If cash flows tighten further in the second half of 2026, mid-rated or weaker issuers could struggle to repay at maturity. That is default risk.

Some companies may be raising new short-term paper simply to pay off paper that is maturing, rather than to fund new activity. If the CBN keeps rates high for longer than expected, that rollover becomes more expensive each time, and the most exposed issuers could find themselves trapped in a debt spiral.

The commercial paper market of 2026 is a clear signal of corporate Nigeria adapting under pressure. Businesses are not waiting to be suffocated by elevated bank lending rates; instead, the financial ecosystem has rewired its own plumbing to keep liquidity flowing where banks have stepped back.

As long as the CBN maintains its tight monetary stance to anchor inflation and protect the naira, traditional bank lending is likely to remain a secondary option for corporate credit. The domestic debt capital market has stepped into that breach and in doing so, is permanently reshaping corporate treasury strategy in Nigeria.