A Nigerian corporate bond market could soon emerge if regulators reduce the cost of issuing debt and provide tax incentives for investors in Nigeria, sub-Saharan Africa’s second biggest economy (next to that of South Africa), banking officials said on Monday.

Companies in sectors ranging from finance to telecoms to oil rely on Nigerian bank loans for nearly all of their funding due to the absence of debt instruments in the capital market.

However, the global downturn and the decline in oil prices have fuelled concerns about the health of Nigeria’s banks, prompting the Central Bank of Nigeria (CBN) last week to seek steps to diversify private funding sources away from financial institutions.

New Central Bank of Nigeria (CBN) Governor Lamido Sanusi last week said that the CBN would seek to reduce the cost of corporate bond issues and work with tax authorities to have a tax-free yield curve. The Governor of the Central Bank of Nigeria (CBN) want to see the development of the Nigerian corporate bond market, so that companies can diversify their funding sources away from banks. The CBN’s banking committee, comprised of top industry executives, welcomed the new initiatives saying it would also help boost investor confidence by allowing firms to have a more stable funding structure.

“The important thing is to encourage institutional investors to invest in corporate bonds by ensuring the tax treatment is favorable,” said Ladi Balogun, Panel Member and Managing Director of Nigeria’s First City Monument Bank. “As a consequence, we should see corporate bonds become a significant part of the funding structure of not just banks, but also other corporates,” he added. State governments, particularly Lagos, in the past year have turned to the debt market to help finance badly-needed infrastructure projects.

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Source(s):
CNBC