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Nigerian firms’ borrowing cost more than doubles as rate hike bites

Nigerian firms’ borrowing cost more than doubles as rate hike bites

Nigeria’s biggest firms  are feeling the heat of the central bank’s decision to raise interest rates as new data show a 161.3 percent surge in the cost of servicing bank loans.

BusinessDay analysis of 20 firms across seven sectors – Cement Makers, FMCGs, Brewers, Conglomerates, Palm Oil Makers, Healthcare and Oil and Gas borrowing costs, which are interest and other expenses, increased to N138.3 billion as of March 2024 from N53 billion in the same period last year,

Analysts believe that the increase in interest expenses is due to a higher interest rate environment and tight market liquidity during the period.

“Broadly speaking, it reflects the upward movement in the interest rate environment. Interest income and expenses are sensitive to rate movements, therefore it is expected to see higher interest expense given the elevation in rates in the first three months of 2024,” Ngozi Odum, financial services analyst at CardinalStone, said.

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Israel Odubola, a Lagos-based economic analyst, said the spike is not surprising and could be attributed to two major things.

“First, between March 2023 and now, MPR has gone up. Just this year alone, MPR has increased by 750 basis points. Any increase in MPR will prompt financial institutions to review rates on existing facilities forward, meaning corporates will incur higher expense in servicing those obligations.”

“Secondly, some of these corporations have foreign-currency-denominated loans. These loans are in hard currencies. As such, the weakening of the naira we have seen between March 2023 and now, which has been quite significant, means these companies will incur higher expense (in naira terms) to service those obligations,” he added.

The Central Bank of Nigeria has increased its monetary policy rate, the benchmark interest rate, by 750 basis points this year to 26.25 percent in May from 22.75 percent in February.

For firms that have loans at a variable rate or need to refinance, the recent rising interest rates will have a marked effect on costs and profits.

Further findings showed the firms’ total borrowings (short-term and long-term borrowings) grew by 42.4 percent in Q1 2024 to N4.97 trillion from N3.49 trillion in the corresponding period of 2023.

The firms analysed are Fidson Healthcare, May & Baker Nigeria, Neimeth International, Okomu Oil, Presco Plc, Transnational Corporation Plc, UAC of Nigeria Plc, Nestle Nigeria, Unilever Nigeria, Cadbury Nigeria, BUA Foods, Nascon Allied Industries Plc, Dangote Sugar, BUA Cement, Dangote Cement, Lafarge Africa Plc, International Breweries, Nigerian Breweries, TotalEnergies, and Eterna oil.

In Africa’s biggest economy, funding capital projects, equipment acquisition, higher prices of raw materials, and energy costs are causing companies to lean on credit just when interest rates are rising at the fastest pace in decades.

Sector analysis:

Cement makers

Nigerian largest cement manufacturers, Dangote Cement (DangCem), BUA Cement, and Lafarge Africa, collectively reported a 134.1 percent surge in interest expenses.

DangCem’s interest expense grew by 162.9 percent to N58.9 billion in the first three months of 2024 from N22.4 billion in the same period last year. Its total borrowings also surged by 43.9 percent to N1.18 trillion from N820 billion during the period.

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Bank loans reported by DangCem amounted to N684 billion as of March 2024. The company noted that bank loans include letters of credit obtained to finance inventories, property, plants and equipment.

BUA Cement interest expense increased to N4.87 billion from N4.42 billion. Its total bank loans for the period amounted to N412.7 billion, a 294.3 percent increase from N104.5 billion in the same period last year.

Lafarge Africa’s interest on borrowings, however, declined by 55.6 percent to N227 million in Q1 2024 from N512 million a year earlier. Its total borrowings declined by 86.5 percent to N4.71 billion.

FMCG firms

BUA Foods’ interest expense stood at N7.1 billion in the first three months of 2024, a 279.6 percent increase from N1.87 billion a year earlier. The company said this was due to an efficient funding mix along with business transactions.

Nestle Nigeria reported interest expenses on financial liabilities amounting to N27.1 billion in Q1’24, 360 percent higher than N5.88 billion a year earlier.

Dangote Sugar Refinery’s interest on bank loans declined by 30.4 percent to N21 million in Q1’24 from N31 million a year earlier.

Nascon Allied Industries reported a 45.9 percent increase in interest on bank loans and overdrafts in Q1 2024 to N264 million from N181 million a year earlier.

Interest on borrowings reported by Cadbury Nigeria grew by 129.53 percent in Q1 2024 to N1.57 billion from N193 million a year earlier.

Unilever Nigeria’s interest expense grew by 303.9 percent to N1.43 billion in the first three months of this year from N354 million in the same period of last year.

“The movement in the interest rate and the devaluation impact are the two major elements that are affecting the cost of securing finance for the FMCG firms,” Abiodun Keripe, managing director at Afrinvest Consulting Limited, said.

He said the companies’ bottom line will be weaker and margins will become slimmer, thereby affecting their profitability. “Volumes may not rise quite aggressively or revenue may not increase at a faster pace.”

Beer makers

Nigerian Breweries grew its interest expense by 285.1 percent to N18.1 billion in Q1 ’24 from N4.7 billion in the same period last year. Its total borrowings increased by 86.5 percent to N469.6 billion from N192.8 billion.

International Breweries reported a 139 percent increase in interest expenses to N8.31 billion from N3.47 billion. Its total borrowings during the reviewed period rose to N473.8 billion from N215.4 billion.

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Transnational Corporation’s interest expense on loans was down by 8.22 percent to N3.68 billion in Q1’24 from N4.01 billion a year earlier.

UAC of Nigeria reported a 119.7 percent rise in interest on bank loans to N1.4 billion from N637 million. Its total borrowings during the reviewed period rose to N31.2 billion from N17.7 billion.

Palm oil makers

Okomu Oil Palm and Presco Plc collectively reported a 2.23 percent spike in interest on long-term loans as of March 2024.

Okomu’s interest on long-term loans fell to N222 million in the three months that ended March 2024 from N246 million in the same period last year, while Presco Plc saw its finance costs surge to N2.07 billion in March 2024 from N2 billion in the same period of last year.


Fidson Healthcare grew its interest on bank loans by 93.8 percent to N882 million in Q1 ’24 from N455 million a year earlier.

May & Baker Nigeria reported a 10.3 percent growth in interest on bank loans and overdrafts to N128 million from N116 million.

The interest expense of Neimeth International Pharmaceutical Plc grew by 93.8 percent to N129 million in Q1’24 from N55 million a year earlier.

Oil and Gas

Nigerian downstream oil and gas companies TotalEnergies, Eterna Oil collectively reported a 131 percent surge in interest expense.

Interest expense of Eterna Oil rose to 211.7 percent to N798 million from N256 million during the reviewed period.

TotalEnergies in the first quarter of 2024 interest expense rose to 101 percent to N1.38 billion from N686 million reported in Q1 ’23.