Evaluation of Effects of Banking Consolidation on Small Business Finance in Nigeria

Abstract

Prior to the 2004 reform in the Nigerian banking sector, banks neglected the small and medium class saver and concentrated more on big corporate savers. Many banks abandoned their essential intermediation role of mobilizing savings and inculcating banking habit at the household and micro enterprise levels. This paper presents empirical findings on the effects of the 2005 bank consolidation on small business finance in Nigeria. The main objective of this paper is to assess the response of flow of credit from the banking sector to small and medium enterprises in Nigeria. Data for the study were sourced from the list of the 25 post consolidation banks in Nigeria. Panel data covering a period from 2004 to 2011 were analysed using the Levin, Lin and Chu panel unit root test analysis to ascertain the authenticity and accuracy of the data series as well as its reliability on policy issues. The study adopts panel regression approach comprising of fixed and random effect models and used Hausman Taylor option in selection of a more efficient estimator for the model equation. The study shows a percentage increase in post consolidation asset base by over 9 percent for the banks and profit maximization increases by 72 percent which could translate to increased bank propensity and readiness to lend. There is also a significant increase in SME credit supply accessible by firms resulting to increase investment and consolidated effort to encourage the development of more SME driving enterprise. The study therefore recommends that credit policy effect should ensure that banks reorganize their asset portfolios so as to create more provision for lending to small firms rather than implementing policies that allow for more stringent conditions and requirements that discourage future development of SME investments in the economy.
Keywords: Bank Consolidation, Intermediation, SMEs Financing.