President and Chairman of Council of the Chartered Institute of Bankers of Nigeria (CIBN), Dr Dele Alabi, has urged banks to redirect their newly-raised capital towards financing micro, small and medium enterprises (MSMEs) and other productive sectors of the economy as returns on government securities decline.

At a press conference to announce the forthcoming CIBN 19th yearly Banking and Finance Conference, slated for September 8 and 9 in Abuja, Alabi said the recent recapitalisation of banks had provided the industry with stronger buffers against economic shocks, but stressed that increased capital would have little impact on economic growth if banks failed to deploy it effectively.

According to him, the banking landscape had changed significantly, with declining yields on government securities and thinning margins among large corporate borrowers making it necessary for banks to explore new and more productive avenues for deploying capital.

He stated categorically that banks can no longer depend heavily on government securities or concentrate lending on top-tier corporate customers, as the changing interest rate environment is reducing returns in those areas.

He said the high cost of equity capital made it important for banks to ensure that the fresh capital raised through recapitalisation was put to productive use in ways that would generate returns while supporting economic growth.

Alabi identified MSMEs as a major engine of economic growth, particularly in emerging economies, but noted that many Nigerian small businesses still face challenges that prevent them from accessing bank financing.

He disclosed that the CIBN is currently working to deepen financial inclusion by creating platforms that would bring MSMEs and banks together, while also helping small businesses overcome some of the challenges that make them unattractive to lenders.

He said the institute would organise MSME forums where businesses could engage directly with banks and move from discussions to actual financing transactions as well as establish SME clinics to help businesses improve their corporate governance, financial reporting, accounting systems and management structures.

Alabi said the objective was to build the capacity of small businesses to a level where banks could lend to them profitably and securely.

He said banks could finance SMEs without compromising asset quality, provided they strengthened risk management systems and developed the right infrastructure for lending to the sector.

The CIBN president also disclosed plans to establish SME clusters in Nigeria, citing experiences from countries such as China and India where cluster-based financing has been used to support small businesses.

He said the institute had already secured support from a state governor to provide space for the establishment of its first SME hub, stressing that the CIBN intended to move beyond policy discussions to practical implementation.

Alabi also added that stronger coordination between monetary and fiscal authorities had emerged as one of the key achievements of the institute’s previous annual conference.

On youth development, Alabi said generational inclusion remained a major priority for the institute, noting that young Nigerians represented a significant part of the country’s population and needed to be prepared to take advantage of future economic opportunities.

Alabi also pointed out that the financial services industry is ready to support the Federal Government’s economic development agenda, adding that Nigeria could not achieve a $1 trillion economy without a strong and efficient financial services sector.