Abstract
This study examined determinants of commercial banks credit to the domestic economy in Nigeria. The objective was to examine the extent to which banks variables, macroeconomic and monetary policy variables affects credit allocation of Nigerian Commercial Banks. Time series data was sourced from Central Bank of Nigeria Statistical bulletin and financial statement of commercial banks. Percentage of total commercial banks loans to gross domestic product was proxy for dependent variable while the banks specific variables are peroxide by operational efficiency, liquidity, number of commercial banks branches, Commercial Banks Deposit Liabilities and deposit rate. The independent variables in macroeconomic model comprises of real gross domestic product, public expenditure, openness of the economy, inflation rate and exchange rate while monetary policy variables comprises of treasury bills rate, real interest rate, monetary policy rate, growth of money supply and financial sector development. The study employed ordinary least square properties of augmented Dickey Fuller test, co-integration test, and granger causality test and vector error correction model. Findings from the study revealed that; banks specific variables shows that deposit liabilities and liquidity ratio have positive impact on total loans and advances while deposit rate, number of commercial banks branches and openness of the economy have negative impact. Model II found that; exchange rate, inflation rate and Real Gross Domestic Product have positive impact while public expenditure and openness of the economy have negative impact on total commercial bank loans and advances. Model III found that; financial sector development and monetary policy rate have negative impact while growth of money supply, real interest rate and Treasury bills rate have positive impact on total loans and advances of commercial banks. We conclude that monetary policy, bank specific variables or internal variables and macroeconomic variables are strong determinants of Nigerian commercial banks loans and advances. We therefore, recommend for the interplay and the strengthening of macroeconomic variables, monetary policy variables and banks specific variables (internal policies) in order to enhance commercial banks credit in Nigeria.
Highlights
In a deregulated, monopolistically competitive and oligopolistic banking environment like Nigeria, bank credit is determined by internal and external factors
From the above knowledge gap, this study examined the determinants of commercial banks ‘credit to the domestic economy of Nigeria by disaggregating the variables into internal, monetary and macroeconomic variables
The coefficient of the variables found that financial sector development and monetary policy rate negatively related to total commercial banks loans and advances while growth of money supply, real interest rate and Treasury bill rate positively relates to the dependent variable
Summary
Monopolistically competitive and oligopolistic banking environment like Nigeria, bank credit is determined by internal and external factors. William (2009) will result to a near shut down in lending ratio volume to any bank with major credit concern because, new policy ensures that only the highest quality borrowers have access to a new bank credit within the year, but according to Ojo (1999) in a study on “roles and failure of financial intermediation by banks in Nigeria revealed that commercial banks can lend on medium and short term basis without necessarily jeopardizing their liquidity If they must contribute meaningfully to the economic development, the maturity pattern of their loans should be on a long term nature rather than of short term period. He applied the panel data analysis and OLS to find out that credit risk, bank size, GDP, liquidity, lending rate and investment were statistically significant and had a positive relationship with commercial banks’ lending He concluded that these explanatory variables greatly influenced banks’ lending decisions compared to deposit and cash required reserve which was insignificant. Principles and empirical findings, the model below is specified in this study
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