Impact Of Bank Recapitalization On The Performance Of Small And Medium Enterprises In Nigeria

Impact Of Bank Recapitalization On The Performance Of Small And Medium Enterprises In Nigeria

Preface

Bank fraud, poor lending and credit operation practices in the Nigerian banking sector forced the Central bank of Nigeria to readdress the capital structure of marketable banks in Nigeria. These among other effects led the Central Bank of Nigeria( CBN) to give a directive that all banks should recapitalize from ₦ 2 billion to ₦ 25 billion with effect from 1st January 2006. This development led to colorful fiscal conditioning in the Nigerian fiscal sector with utmost banks originally concluding for fresh source of fund from the capital request via floating of shares. utmost banks at this stage started inviting members of the public to acquire new shares in- order to meet up with the new minimal capital directed by the central bank of Nigeria. Notwithstanding, some banks weren’t able of raising the new minimal capital by themselves, hence the need for combinations and recapitalization of banks, reducing the total number of banks in Nigeria to twenty five( 25).

still, the recapitalization of the banking sector presented new challenges to the banks which bear further sweats to control cost and increase their effectiveness; this in turn has effect the volume of credit installations granted to small and medium scale enterprises in Nigeria. A study conducted by Iloh et al( 2012) reveals the gap between deposit plutocrat bank deposits(D.M.B.D) and marketable bank lending to SMEs from time 2000 overhead( the time that saw the end of trafficker banks). There’s a wide periphery between the two variables and while deposit plutocrat bank deposits rose veritably high, marketable bank lending to SMEs declined from 2004 to 2010. The gap between marketable bank deposits and its lending to SMEs reveals the shift in focus from advancing to SMEs to lending to major investors( guests). One is made to ask, while the banking sector is said to drive any frugality, has Nigerian marketable banks neglected SMEs, which is vital for the growth and development of the Nigerian frugality? Notwithstanding, it’s intriguing to note that community Micro finance bank(C.M.F.B) lending to SMEs moved in the same trend with its bank deposit. This implies that as community/micro-finance bank deposits increased, it’s lending to SMEs increased. Anyhow of the direct impact of community/micro-finance bank on SMEs, SMEs still cry for lack of backing and lending to SMEs in Nigeria is still poor. This is so because their capital, reserve and deposit are veritably small and inadequate to meet the requirements of small and medium entrepreneurs. It’s the in the light of the above that this study examined the impact of banks recapitalization on the performance of small and medium enterprises in Nigeria( SMES).