Analysts Concerned About Impact of Bank Recapitalisation on SME Funding
Analysts have expressed concerns that the ongoing bank recapitalisation efforts in Nigeria could lead to increased industry consolidation, potentially affecting lending practices, particularly for small and medium-sized enterprises (SMEs).
The Central Bank of Nigeria’s directive requiring banks to raise their capital base is reshaping the financial landscape, prompting smaller banks to consider mergers. However, this move has raised fears that it could limit access to credit, especially for SMEs.
Vincent Nwani, Head of Research at FMDQ Group, highlighted the likelihood of a surge in mergers and acquisitions as smaller banks struggle to meet the new capital requirements independently. He emphasized that while this consolidation might make the banking sector more competitive, it could also restrict credit availability for smaller businesses.
“The recapitalisation will undoubtedly lead to further consolidation in the banking sector. Smaller banks may struggle to meet the new requirements independently, prompting more mergers and acquisitions. This consolidation is likely to create a more competitive environment but may limit credit access for smaller enterprises,” Nwani explained.
Similarly, Olusegun Ajibola, a Professor of Economics at Babcock University, warned that although the recapitalisation could strengthen the overall banking sector, it might also result in tighter lending conditions for SMEs. He pointed out that banks, in their efforts to meet the new capital requirements, may focus on accumulating capital rather than extending loans, which could temporarily reduce the availability of credit for SMEs.
“While the recapitalisation will strengthen the banking sector, the immediate effect will be a tightening of lending, particularly to small and medium-sized enterprises. Banks are focused on shoring up their capital, which could temporarily crowd out credit availability for SMEs, crucial to our economy,” noted Ajibola, the former president of the Chartered Institute of Bankers of Nigeria.
In a related development, the Association of Securities Dealing Houses of Nigeria (ASHON) has criticized banks for allegedly bypassing licensed stockbrokers during the recapitalisation process. ASHON’s Chairman, Sam Onukwue, and Secretary, Athan Ogbozor, reported that the association was training its staff, including non-traditional personnel like drivers and receptionists, to handle share subscription forms, in response to the banks’ actions.
