Commercial Banks’ Sectoral Credit Allocation and Growth of Nigeria Economy: An Impact Analysis (1994-2015)

Abstract

This study set out to analyse the impact of commercial banks sectoral credit allocation on the growth index of Nigeria economy. Data for the study were obtained from secondary sources and analysed using econometric methods namely: ADF unit root test, Johansen Cointegration test; vector error correction model and Granger causality test. The ADF test result indicate that the variables are stationary at first difference. The Johansen cointegration result revealed that there are three cointegrating equations among the variables. The vector error correction result indicate that economic growth is a positive and significant function of credit to agriculture, manufacturing and general services. The result of Granger causality shows that credit to agriculture is bidirectionally related to economic growth while credit to manufacturing sector granger causes economic growth without a feedback effect. The study therefore recommended that government should provide the enabling environment for small, medium and large business to operate. This could be do ne thro ugh business friendly monetary and fiscal policies. Commercial bank should reduce the interest rates on lendings to facilitate operations in various sectors and increases growths.

Deposit Money Banks’ Credit Allocation to Selected Sectors and the Performance of the Nigerian Economy

“…This implies that the credit proffered by DMBs to the manufacturing sector is insignificant to causing significant changes in economic growth. The results and findings of this study are in tandem with the findings and results of Nwakanma et al (2014), Paul (2017) and Ubesie et al (2019). This implies that the DMB's credit advanced to the manufacturing sector is inadequate to stimulating the desired level of economic growth in Nigeria.…”

“…The data was sourced from the Central bank of Nigeria Statistical Bulletin, 2020. The study adopted the model of Paul (2017) which was developed and modified for the purpose of the study. The sectors of interest in the study are agricultural and manufacturing sectors.…”

“…The study conducted by Paul (2017) used vector error correlation model and Granger causality test to examine the impact of deposit money banks sectoral credit allocation on Nigeria economy between 1994 and 2015. The findings reveal that, the variables are stationary at first difference and the economic growth is a positive and significant function of lending to agriculture, manufacturing and general services.…”

“…In most developing nations, the capital resources and financial infrastructure essential in directing investment funds from the financial sector to the different sectors of the economy has been grossly inadequate (Paul, 2017). This trend however has intensified the importance of deposit money bank credit allocation as the only lifeline in providing the necessary credit facilities and capital finance to the various sectors of the economy, especially as the financial markets are poorly developed in mobilizing the necessary financial resources needed to accelerate the desired level of economic growth.…”

Which Sector-Based Bank Lending Facilities can Contribute to Long-Term Economic Growth? : Indonesian Study

“…The existence of a positive relationship between agricultural sector credit, wholesale and retail trade sector credit, and transportation, warehousing and communication sector credit, is also supported by several researchers in various countries. Something was found in a study in Nigeria by (Ayeomoni & Aladejana, 2016;Paul, 2018) finding a significant positive relationship in the long term from agricultural sector credit to economic growth. The Nigerian economy regards the agricultural sector as the main driver of growth as it is the supplier engine for the economic sector.…”