Bank lending behaviour and small enterprise debt financing

Abstract

Purpose The reason for concern is the rapid decline in loans to small enterprises which is critical to their performance, compared to large businesses following the periods of banking reformations in Nigeria. Thus, the purpose of this paper is to investigate the influence of risk perception on bank lending behaviour to small enterprises. It also investigates the impact of government intervention, consolidation and recapitalization on the relationship between risk perception and bank lending behaviour to small enterprise. Design/methodology/approach This study empirically analysed (ordinary least square) secondary data obtained from the Central Bank of Nigeria Statistical Bulletins, Annual Statement of Accounts covering the period 1992–2020. Findings The results show that the absence of government interventions and the presence of banking reformations have statistically negative significant effect on bank lending to small enterprises. The findings challenge the argument that generally assumes risk aversion of banks towards small enterprise lending because of small enterprise’s inability to prove their credit worthiness and consequently constraining access to finance to the sector. Instead, the results and analysis from this study found theoretical support for the variation of bank behaviour in lending to small enterprises depending on the status of wealth of the financial system. Practical implications A key lesson from this study for government concerned about promoting performance of the small enterprise sector is that regulating and enforcing lending requirements on access to debt financing of the sector is necessary if constraints in access debt finance is to be eliminated. Second, while strategies such as bank consolidation, recapitalization may help strengthen and make financially robust the banking system; it places the banks in a gain position where losses looms to them than gain. Originality/value This study challenges the argument that generally assumes risk aversion of banks towards small enterprise lending as a result of inability to prove their credit worthiness and consequently constraining access to finance to the sector. Instead, the results and analysis from this study reveal a variation in lending to small enterprises and suggests that the position of the bank in relation to a reference point influences how risk is perceived by the bank and thus impacts on their risk decision-making behaviour.

Investigative Study on Disparities in Small and Medium Enterprises (SMEs) Financing Pertaining To Surgical Instruments Cluster

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Bank loans to agricultural SMEs and the performance of the agriculture sector in Sri Lanka

“…Binks, Ennew, and Mowlah [6] examine the crucial role of banks in supporting Small and Medium Enterprises (SMEs). Banks contribute by providing the necessary investment capital Olapeju, Oluwasoye, and Demola [9] evaluate the influence of risk perception on the lending behavior of banks towards small enterprises. They find government interventions and the presence of banking reforms have a statistically negative and significant effect on bank lending to small enterprises.…”

Determinants of Corporate Indebtedness in Portugal: An Analysis of Financial Behaviour Clusters

“…Sometimes some investment projects do not meet the necessary conditions for approval, but when it comes to projects linked to state initiatives, public banks are called upon to support them (Manuel et al 2018). In their study, Ogunmokun et al (2024) found that during periods of economic restructuring, the lack of government intervention and the presence of banks have a negative and significant impact on loans to small businesses. Ono and Uesugi (2009) consider that the use of collateral is complementary to relationshipbased financing and point out that collateral plays an important role in facilitating the relationship between borrowers and lenders.…”

“…Authors such as Mutamimah et al (2021), Zhang et al (2022), and Ogunmokun et al (2024) argue that the provision of credit to companies is based on the analysis of corporate information to assess repayment capacity. However, the information asymmetry between banks and companies poses a challenge, making credit risk a critical concern.…”