Nigeria N1.06trn CP market to receive boost as CBN plans lending directly to companies via instrument

Nigeria’s growing commercial papers (CPs) market, which rose from a near zero level in 2013 to over N1.06 trillion as at May 2018, would receive further boost as the Central Bank of Nigeria (CBN) plans lending directly to companies via the instrument.

Analysts say the move would raise fresh window of opportunity for businesses looking to tap the non-bank debt market for short-term capital and for investors seeking to diversify their portfolios.

Commenting on the proposed lending incentive, analysts at Financial Derivative Company (FDC) noted that CBN’s plan to reduce lending rates for employment elastic sectors by commercial issuance will encourage financial disintermediation.

The Central Bank of Nigeria (CBN) Tuesday announced plans to lend to large companies in the country by buying Commercial Papers (CPs) issued by such firms.

Godwin Emefiele, CBN governor, disclosed this at the end of the monetary policy committee meeting in Abuja, saying the bank would be willing to buy if the papers are issued at single digits and for tenures as long as seven years.

He said that the decision to invest in corporate organizations became necessary because deposit money banks (DMBs) had frustrated past incentives by CBN aimed at encouraging them to lend to the real sectors of the economy.

“In this regard, the committee believed that a heterodox approach to reform the market in order to strengthen the flow of credit would be appropriate at this time.

“Consequently, credit constrained businesses, particularly the large corporations are encouraged to issue commercial paper to meet their credit needs and the Central Bank of Nigeria may if need be, buy those instruments to complement the efforts of the DMBs,” Emefiele said.