I have noted that the voyage of Nigeria’s large companies to commercial papers should be considered a huge risk vector in our financial system. I have explained that just a few years ago, commercial papers were not important enough to be explained in most O’Level economics textbooks in Nigeria. But in the last decade, commercial papers have assumed unusual positioning in the nation.
Commercial paper is a short-term, unsecured promissory note issued by corporations, typically used to finance short-term liabilities like payroll and accounts payable. It’s a way for companies to raise money quickly and efficiently, especially for operating needs.
The apex bank seems to have noticed: “Fresh concerns are emerging over credit risk in Nigeria’s lending market as the Central Bank of Nigeria (CBN) reveals a sharp uptick in loan defaults by large private non-financial corporations (PNFCs) and other financial corporations (OFCs). This is despite an overall improvement in loan performance across smaller business segments and households, and against the backdrop of the Nigerian financial industry preferring big corporates.“
Yes, the small businesses are taking care of their bills while the big companies are not doing well. But of course, big companies have a dump called AMCON where they can exit those loans (sure, things have changed). But here is the deal: I am not overly worried about a sovereign debt-induced paralysis in Nigeria as oil is still flowing, my challenge is that corporate debts can rattle the nation.
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So, it is very refreshing that the Central Bank of Nigeria is looking at corporate debt risks now and the exposures the banks have in their books. That said, why do companies need to borrow this way, turning short-term loans into long-term ones? Maybe capital is not flowing easily into the nation due to the gyrating nature of the Naira. And that means fixing this debt matter must also include stabilizing the currency.
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You’re absolutely right to highlight the growing prominence and danger of commercial papers (CPs) in Nigeria’s corporate finance landscape. What used to be a footnote in economic education has now become a core pillar of debt financing for major firms, yet it’s operating in a fragile ecosystem.
Here’s my take:
The surge in CP usage is a mirror reflecting two deep-rooted issues: (1) the scarcity of affordable long-term capital, and (2) the growing dislocation between corporate governance standards and financial discipline.
While CPs can be useful for managing working capital, they are increasingly being abused as backdoor, perpetual refinancing tools. This blurs the lines between liquidity management and outright financial engineering. When large firms keep rolling over short-term debt indefinitely, they build up structural risk—especially in a market like ours that lacks deep secondary markets or active credit rating systems to enforce discipline.
My contribution to the discussion is this:
We need to rethink not just the instruments, but the incentives. Why do banks and large investors prefer lending to big corporates despite rising default risks? It’s simple concentration of risk often brings short-term returns and political insulation. Small businesses, though more consistent in repayments, lack the same visibility and “rescue parachutes” like AMCON. That uneven playing field distorts market behavior.
To tackle this issue effectively:
Deepen the corporate bond market: Build investor confidence through transparent credit assessments and encourage pension funds and insurance companies to diversify beyond sovereign securities.
Develop stronger credit analytics: We need a centralized, transparent credit bureau that reflects corporate behavior not just balance sheets, but repayment culture.
Tighten regulatory incentives: If we can’t penalize firms for abusing short-term instruments, we can at least disincentivize lenders from overexposing themselves to those firms.
Finally, you’re spot on currency instability plays a major role. But even with a stable Naira, if we don’t fix the structural incentives in corporate finance, we’re just masking a deeper vulnerability.
Would love to hear your thoughts on how we might create better balance between short-term liquidity options and sustainable capital formation in Nigeria.