Commercial Banks and Real Sector Credit: A Comparative Study of Pre and Post Consolidation Reforms in Nigeria

Abstract

This study examined the effect of banking sector reforms on real sector credit in Nigeria. Panel data were sourced from Central Bank of Nigeria Statistical Bulletin and financial statement of the commercial banks in the pre consolidation and post consolidation reforms. Multiple regression models were formulated to examined and compare the effect of post consolidation reforms on demand side financial intermediation. Nine commercial banks that bear the same name in the pre and post consolidation reforms were used as sample size. Real sector credit was proxies for dependent variables while capital reforms, interest rate reforms, Central bank policy reforms, bank competition, management quality, assets quality, market risk and liquidity reforms were proxies for independent variables. The study employed panel data regression models of pooled effect, fixed effect and random effect models. After cross examination of the models using the Hausman test, the fixed effect models were used. The study found that 53.4 percent of the systematic variation in the real sector credit in the pre consolidation reforms and market risk has positive and significant effect on real sector credit while management quality, bank liquidity reforms and assets quality have negative effect on real sector credit in the pre consolidation reforms. The estimated model found that 78.1 percent of the systematic variation in the real sector credit in the post consolidation reforms while bank liquidity have negative and no significant effect on real sector credit while management quality, market risk and assets quality have positive effect on real sector credit in the post consolidation reforms. The study concludes that post consolidation reforms have significant effect on real sector credit. The study recommended that the Central Bank of Nigeria should continue with its banking sector reforms such as increase capital base as this can encourage substantial credit allocation to the prior