Abstract
This study examined the relationship between commercial banks loans and lending rate in Nigeria for the period of 1981 to 2016. The study employed the augmented Granger causality test approach developed by Toda and Yamamoto (1995). This study is motivated by the fact that commercial banks loans and lending rate is the key to development and growth of every economy through the manufacturing sector, Agricultural sector, and industrial sector. The specific objectives of the study are; to examine the causality between commercial banks loans and lending rate, to examine the causality between commercial banks loans and money supply, and to examine the causality between commercial banks loans and monetary policy rate. The objectives shall be examined using an alternative causality testing approach of Toda-Yamamoto (1995). The proposed data employed shall be from Central Bank of Nigeria statistical bulletin (2016). The results are expected to illustrate the extent to which commercial banks loans and lending rates has affected the investment sector of the economy and suggest ways of cushioning the negative effects Keywords: Commercial bank loans, Lending rate, Toda and Yamamoto causality. DOI : 10.7176/JESD/11-2-02 Publication date: January 31 st 2020
Highlights
Bank Lending is a very important function of the banking system, providing liquidity in the economy, profitability of the banks through the interest charged as well as impacting on the economic growth rate and the business net worth of nations. Okpara (2009) explains that the banking sector helps to make credits available by mobilizing surplus funds from savers who have no immediate needs for such funds and channel such funds in form of credits to the investors who have brilliant ideas on how to create additional wealth in the economy but lack the necessary capital to execute such ideas
4.3 Interpretation of Toda-Yamamoto Causality Test Result From table 3 above, the Toda-Yamamoto causality test revealed that lending rate (LER) causes commercial banks loans (CBL) without a feedback
Monetary policy rate (MPR) causes lending rate (LER) without a feedback while there is no direction of causality between money supply (MOS) and commercial banks loans (CBL)
Summary
Bank Lending is a very important function of the banking system, providing liquidity in the economy, profitability of the banks through the interest charged as well as impacting on the economic growth rate and the business net worth of nations. Okpara (2009) explains that the banking sector helps to make credits available by mobilizing surplus funds from savers who have no immediate needs for such funds and channel such funds in form of credits to the investors who have brilliant ideas on how to create additional wealth in the economy but lack the necessary capital to execute such ideas. This study showed evidence of the effect of size, credit risk, GDP ratio and liquidity on lending in commercial banks, while it did not show any evidence of the effect of deposits, investment, cash reserve required and interest rates. Afolabi , Adeyemi , Salawudeen , and Fagbemi, (2018), examined Monetary Policy and Bank Credit in Nigeria: A Toda-Yamamoto Approach, the result shows that, that there is no long run relationship among the variables used for the study. Employing the seemingly unrelated regression (SURE) framework, we estimated a VAR (4) as follows; CLEBRLtt. To test that lending rate (LER) does not Granger cause commercial bank loan (CBL), money supply (MOS) and monetary policy rate (MPR), the null hypothesis is stated as: H0 : βij = 0 Versus. A good attribute of the VAR model is that it obviates a decision as to what contemporaneous variables are exogenous with only lagged variables on the right-hand, and all variables are endogenous
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