INFLUENCE OF BANK MERGERS ON LENDING TO SMALL BUSINESS BORROWERS IN NIGERIA

CHAPTER ONE

INTRODUCTION 1.1

Background of the Study

Bank mergers and acquisitions remain complex corporate events that affect bank customers in particular markets for banking services they seek to purchase (Samolynk and Avery, 2000). This assertion agrees with both the Structure-Conduct Performance (SCP) and Efficient-Structure Performance (ESP) theories of banking consolidation, which state that changes in bank market structures and concentrations due to banking consolidation affect the way banks behave and bring about gain in overall bank efficiency respectively (Shaik et al 2009). This theory was generally based on general bank lending and was not narrowed down to specifics such as small business lending. At present, the dynamic effect of a merger-driven collusion power on the banks’ ability to create small risk assets has remained a contentious issue among Nigerian policy makers. Therefore, with subsequent banking consolidations and recapitalizations that have resulted in the emergence of huge banks, the policy makers have raised great concern and fear that small business borrowers’ may not have been benefiting from banking consolidation. Determining the reality of this fear is a necessity that cannot be ignored in order to mitigate any likely risk of bad economic policy.

Statement of Problem

Poor knowledge of the extent and the directions of the impacts of bank consolidations on small business lending have led to significant counter-productive policies capable of pulling down the entire economy in near future in Nigeria. Literatures have revealed that the Great Depression of 1930s in US had a depth of its root in the destruction of local banking products because of information asymmetries. Such signs of policy misconceptions and confusions regarding merger effects on local banking products are growing among Nigerian policy makers. It is quite unfortunate that just few years after the hailed bank recapitalization mandate that there are great regrets and fears by the apex bank that the structure of Nigerian banking industry has created a big gap in terms of institutions that serve different segments of the economy (Ebelo, 2013). This implies that the relationship between huge banks and small business lending has been in doubt to them before the recapitalization mandate. This is the problem; running an economy through assumption is costly and quite risky.

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Updated: 24th April 2019 — 3:48 pm