Impact of Treasury Bill on Private Sector Credit in Nigeria

Abstract

In this study, the effect of treasury bills on private sector credit in Nigeria using annual data from 1981 to 2018 was examined. The specific objectives of the study were to examine the impact of treasury bills and treasury bill rate on private credit. Treasury bills was disaggregated into its various components and used as explanatory variables along with other essential macroeconomic variables. The study was conducted in the light of the crowding out effect hypothesis. The behavior of variables was captured in an autoregressive distributed lag (ARDL) model. The result of the estimated model shows that treasury bills held by commercial banks, treasury bills held by the public and treasury bill rate has significant negative effect on credit to private sector, showing that treasury bills have a crowding out effect on private sector credit. It is recommended that treasury bill rate should be set to align with other rate of return on short term financial asset in the financial system to allow for fair competition between public sector and private sector debt instrument and thus limit the crowding out effect and that the issuing of treasury bills should be justified with the existence of excess liquidity in the financial system.

Public Debt and It’s Impact on Bank Behaviour and Financial Efficiency: Ghana in Perspective

“…This is in harmony with the broader discourse on the nega-tive impact of public debt on economic dynamics, including inflation and borrowing costs [2,3]. The hesitancy of banks to extend loans amid high public debt resonates with the theoretical implications of the lazy bank model, where banks prefer holding risk-free government bonds, overextending credit to the private sector, thus reducing the availability of credit and stifling financial innovation [46,47]. Moreover, the revelation of the negative impact on the diversity and innovation in lending products and financial inclusion reflects the literature's emphasis on the importance of financial development for economic growth and inclusivity [13,14].…”

“…The findings from our study confirm the consensus among banking professionals regarding the significant repercussions of high public debt on the banking sector's operations and financial intermediation, echoing the scholarly discourse from [18,12], and insights from the IMF. This consensus points to a strategic shift towards more conservative lending practices as public debt mounts, in line with the cautionary stance posited by the lazy bank model and the attendant risks identified by [46,47]. Such prudence is a response to the anticipated inflationary pressures and the upward pressure on borrowing costs, themes recurrent in the analyses provided by [2].…”

“…In the lazy bank model context, high public debt levels can incentivize banks to hold risk-free government bonds rather than making loans to the private sector [46,47]. Consequently, banks may become more risk-averse, reducing credit availa-bility to private borrowers [48].…”