The Chartered Institute of Bankers of Nigeria (CIBN) has advised banks to deploy N4.61 trillion new capital raised through the recently concluded bank recapitalisation as loans to Micro, Small and Medium-sized Enterprises (MSMEs).
President/Chairman of Council, CIBN, Dele Alabi, spoke during the world press briefing in Lagos ahead of the CIBN 19th Annual Banking and Finance Conference. The event with theme: Building a Resileint Economy in Era of Disruption” will hold on September 8 and 9 in Abuja.
Alabi said banks could no longer depend largely on government securities and top-tier corporate borrowers to earn huge income and or in channeling the newly raised funds because margins in those segments of the market are shrinking.
According to him, the banking industry had changed, particularly as interest rates and yields on government securities are on decline.
“Capitalisation provides a buffer for shocks. It sort of insulates banks’ balance sheet. But it does not stop there. Banks must now think more strategically about how to deploy the capital raised,” he said.
According to him, banks previously focused heavily on government securities and top-tier companies, but the changing interest rate environment was making that strategy less attractive.
He added that yields are coming down on the government securities and big borrowers are asking for reduced loan rates. Alabi described capital as the most expensive source of funds and said banks therefore needed to deploy it in ways that would generate sustainable returns while supporting economic activity.
He identified MSMEs as a major area of opportunity, arguing that smart banks would need to move further down the lending ladder to serve micro, small and medium-sized enterprises.
“Therefore, smart bankers, smart bank CEOs, have to think of a more ingenious way of utilising this capital,” he said.
The CIBN president said the push for increased MSME lending would also form part of the Institute’s broader financial inclusion agenda under its new IMPACT vision.
The vision has six pillars: inclusion, membership economy, professionalism and ethical conduct, accountability and enhanced financial performance, competence and skills development, and technology, automation and innovation.
Alabi said financial inclusion could not be achieved without ensuring that critical participants in the economy, particularly MSMEs, had access to finance.
“MSMEs represent a critical source for the growth of the economy. Not only in Nigeria. Globally, for emerging markets, MSMEs are the ones that drive the economy,” he said.
However, he acknowledged that Nigerian SMEs face structural challenges that make lending to the sector difficult, including weak corporate governance, lack of audited financial statements, unreliable financial records, inadequate accounting systems and the lack of separation between ownership and management.
To address these challenges, CIBN plans to organise MSME forums that will bring businesses together with banks, with the objective of moving discussions from engagement to actual transactions.
The Institute also plans to establish SME clinics to strengthen the capacity of businesses and help them become more bankable.
“We’re going to come up with SME clinics where we’re going to build the capacity of our SMEs, with a view to ensuring that we bring them to a level where banks can lend to them,” Alabi said.
He said the Institute was also working on the development of SME clusters in Nigeria, drawing lessons from countries such as China and India, where clusters have been used to support small businesses.
According to him, CIBN had already discussed the concept with the Lagos State Government, which agreed to provide space for what could become the first SME hub under the initiative.
Alabi said lending to SMEs profitably and securely was not mutually exclusive, provided banks strengthened their risk management systems and lending infrastructure.
“We have said to our colleagues, the bank CEOs, that lending to SMEs in a profitable and secure manner are not exclusive. You can achieve both simultaneously,” he said.
He argued that greater lending to SMEs would provide benefits beyond the banks themselves by supporting employment, reducing economic vulnerability and expanding productive activity.
The CIBN president also linked the deployment of bank capital to Nigeria’s ambition of becoming a $1 trillion economy, saying the financial services industry would have to play a central role in achieving that target.
“It has been widely accepted, and there is empirical evidence to support the fact that an economy cannot grow to a $1 trillion market without the support of the financial services sector,” he said.
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