Experts View On Impact Of American Bank On Nigerian Economy

Experts have expressed different opinions about the impact of the collapse of the American bank, Silicon Valley Bank, on the Nigerian economy.

Regulators closed SVB Financial Group and its subsidiary, Silicon Valley Bank, on Friday and seized its deposits in what is the largest US banking failure since the 2008 financial crisis and the second-largest ever.

The beginning of the end for SVB started on Wednesday, when it surprised investors with news that it needed to raise $2.25bn to shore up its balance sheet.

According to a California regulatory filing, customers withdrew $42bn of deposits by the end of Thursday.

The ripple effect of the SVB collapse was seen in banking stocks in the US as four banks lost $52bn in market value as of Friday.

Reacting to the development, financial analyst, Johnson Chukwu, said that Nigerian financial institutions will not be impacted by the shocks of the SVB collapse.

Chukwu said, “It depends because our currency is not yet tradable. It is not a convertible currency so it is difficult for Nigerian financial institutions to invest outside the country. Before they can invest, they get Central Bank approval and most of these investments are not short-term investments.

“They are long term investments in terms of acquisition of subsidiaries, major stakes in offshore financial entities. Because Nigerian banks do not play in the global interbank market and in the global short-term market, so I doubt if we will have any Nigerian financial institutions that will be directly exposed.

“Of course, we could have a Nigerian entity, which in this case will be non-bank financial entity. But for financial institutions, the risk of contagion is low.”

Prof Olawale Ajai of the Lagos Business School also said that Nigeria’s exposure appeared small at the moment. He however, called on the government to assess the situation and do the needful.

He said, “Exact impact is unclear for now and Nigerian exposure appears small. Apparently, funds of some Nigerian entities may be within the insured deposits. If a buyer can be found, larger depositors may eventually be made whole.

“Nigerian authorities should assess impacts to see if there is need for rescue or support. Funding of tech companies may suffer a short term decline. Incoming government hoping to push tech sector growth should put on its ‘thinking cap.”

However, a professor of economics at Babcock University, Segun Ajibola, expressed fears of systemic problems and the impact that the collapse of SVB would have on the global banking industry, which would not exempt Nigeria.

He said, “The news came as a rude shock. SVB has been a major name in the banking landscape not only in the US but globally, so when the regulators moved against it, it came as a shock.