Influence of Bank Consolidations and Bank Deposit Demands on Lending to Small Businesses: New Ex Post Factor Evidence Emerging from Nigerian Banking Sector

Abstract

This study investigated how the interactions between bank consolidations and positively changing bank deposits have affected banks’ lending to small businesses in Nigeria. In the famous Monti-Klein model of banking firm, variables such as consolidations are considered random and uncorrelated with other fundamental domains and as such are not considered among the factors that can determine banks’ lending behavior. However, studies have emerged that found consolidations imperative in determining banking behavior. With subsequent bank consolidations that have occurred in Nigerian banking sector, where deposit demands have changed due to the consolidations, concerns have been raised concerning how interactions or associations between consolidations and deposits could influence bank lending to small credit users. That is, whether this influence differs when the changes in deposits were not direct merger interference. From all ramifications, this kind of clue could enhance good policies on Nigerian economy. Disappointingly, information regarding these concerns has remained asymmetrical. Knowing the adverse implication of this, the researcher selected for study, all the 24 banks that have involved in consolidations and/or recapitalization especially after N25billion bank recapitalization mandate in Nigeria using an Ex-Post Facto research design. Data were obtained from the Central Bank of Nigerian Statistical Bulletins and were analyzed using multiple regression analysis techniques. The results showed that after consolidations, changes in bank deposits caused by consolidation negatively affected small business lending and it is significant. However, when deposits change due to other factors other than consolidations, the influence on lending to small businesses tested negative although insignificant. Government should encourage deposit growth through economic development rather than through consolidations.

Keywords: Mergers, Acquisitions, Consolidation, Small Business and Bank Size