The commercial banks in Nigeria has undergone a number of bank reforms after several periods of financial crisis with efforts to improve the operational efficiency. The banking sector in Nigeria has suffered several periods of financial crisis, which are attributed to inadequate regulatory framework, quick shift of banking reform to another and lack of proper implementation, which has influenced the operational efficiency of banks (Ezeoha, 2011; Ogowewo and Uche, 2006). The change from one bank reform to another was to another were efforts to improve operational efficiency. However, there is no clear evidence of the impact of the bank regulatory framework on the operational efficiency of commercial banks in Nigeria. Big banks’ loans were channelled to few and large companies which resulted in accumulated debts and bank crisis, while medium banks were left without enough capital to perform their intermediary roles and cater for the small and medium enterprises (SMEs) (Agbonkplor, 2011).
SMEs contributes to about 70% of employment and about 15% of the manufacturing industry output in Nigeria (CBN, 2010). However, with SME being major populace of the economy which contributes most to agriculture, manufacturing and employment, there is a gap in the financial services provided by the commercial banks to SMEs (Onakoya et al., 2013).
The importance of a sound and well-developed banking sector that enables the bank to be efficient in its operations cannot be over-emphasized as noted by previous researchers (Triki et al., 2017; Dogarawa, 2011) as this plays a role in bank innovations in financing the SMEs. This study therefore examines bank regulatory framework relating to commercial bank lending to SMEs, and its impact on operational efficiency of banks in Nigeria.
The research study employs the mixed method design, which combines quantitative and qualitative features of research. Primary data are obtained from semi-structured questionnaires from 162 bank managers and loan officers from 20 main commercial banks, and from 80 small business owners from different sectors of the economy based mainly in Lagos, Abuja and Rivers in Nigeria who comprises of the small enterprises from the demand side.
The data collected from questionnaire are analysed using the descriptive statistics, and cross tabulation and chi square tests carried out to establish the significant relationship of the elements in order to ascertain that they are regulatory factors in the banking sector which influence lending to SMEs. While the data from interviews involved the use of Nvivo. Quantitative data obtained from the annual reports of the selected commercial banks to determine their operational efficiency level, are analysed using data envelopment analysis.
The study finds out that the banks determine the limit of funds accessible for lending to SMEs from the assessment of their capital base and collaterals. Factors such as having a good relationship with the lending bank and guarantee have positive influence on commercial bank lending to SMEs as they helps to reduce the stringent conditions and requirements for credit approvals and also reduces information asymmetry that exists between banks and firms.
Thus, the study identified regulatory factors such as high interest rate and collateral security as main barriers to bank lending from supply side. Whereas on the demand side, age of business existence and its location, inadequate business plan, unacceptable business project and poor record keeping as bank officials assess the capital base of businesses and viability through financial records of the firms.

Original languageEnglish
Publication statusAccepted/In press - 2019

ID: 3070688