Abstract
The willingness of commercial banks to provide loans is determined by various factors. In this regard, this paper provides empirical evidence on determinants of bank lending in Nigeria. The parsimonious model of this study investigates the impact of growth in loan-to-deposit ratio, growth in inflation, growth in broad money, and growth in bank capital on growth in bank lending using annual data from 1961 to 2016. This study adopts the autoregressive distributed lag (ARDL) bounds testing approach and Granger causality tests to investigate the relationship and direction of causality among the variables, respectively. The Granger causality tests show that growth in broad money Granger-causes growth in bank lending, while there is no causality from other explanatory variables to bank lending in Nigeria. Also, this study shows that growth in bank lending Granger-causes growth in loan-to-deposit ratio and growth in inflation in Nigeria. Thus, this paper argues that commercial banks in Nigeria exhibit stern concern for their liquidity and capital adequacy positions while acting as financial intermediaries. Additionally, this paper argues that the Central Bank of Nigeria (CBN) possesses “paper-based” independence.
Highlights
In every economy, the financial sector is designed to drive economic growth
Following the bank lending channel, as earlier discussed, this study considers broad money as a monetary policy tool, loan-to-deposit as a liquidity measure determined through bank regulation, and inflation measured by consumer price index as a macroeconomic indicator of general price level
The Jarque–Bera test is conducted to examine the null hypothesis that the residuals are normally distributed
Summary
The financial sector is designed to drive economic growth. causality results on the finance–growth relationship from different countries remain inconclusive, with unresolved arguments. The existing studies of Odedokun (1996), Mahran (2012), Marashdeh and Al-Malkawi (2014), Kumar (2014), Fethi and Katircioglu (2015), Deyshappriya (2016), Bist (2018), and Taivan (2018), among others, find evidence to support the finance-led growth view or supply-leading hypothesis. Studies such as Hassan et al (2011), Ndlovu (2013), Pan and Mishra (2018), and Nasir et al (2018), among others, support the growth-led finance or demand-leading hypothesis. The studies of Akbas (2015), Nyasha and Odhiambo (2015), Adeniyi et al (2015), and Pradhan (2018), among others, find evidence to support that finance does not impact economic growth, or the neutrality hypothesis. The significance of the financial sector on economic growth remains a topic for continued research
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