Abstract
This study investigated the determinants of commercial banks’ lending behaviour in the Nigerian context. The study aimed to test and confirm the effectiveness of the common determinants of commercial banks lending behaviour and how it affects the lending behaviour of commercial banks in Nigeria. The model used is estimated using Nigerian commercial banks loan advance (LOA) and other determinants or variables such as their volume of deposits (Vd), their investment portfolio (Ip), interest (lending) rate (Ir), stipulated cash reserve requirements ratio (Rr) and their liquidity ratio (Lr) for the period; 1980 – 2005. The model hypothesizes that there is functional relationship between the dependent variable and the specified independent variables. From the regression analysis, the model was found to be significant and its estimators turned out as expected and it was discovered that commercial banks deposits have the greatest impacts on their lending behaviour. The study then suggests that commercial banks should focus on mobilizing more deposits as this will enhance their lending performance and should formulate critical, realistic and comprehensive strategic and financial plans.
Highlights
Lending which may be on short, medium or long-term basis is one of the services that commercial banks do render to their customers
In respect of the hypotheses stated below, the main issue is an investigation of the relationship that exists between the loan and advances of commercial banks and each of the other explanatory variables that have been identified through literature and theory i.e. volume of deposits, investment portfolio, interest rate, cash reserve requirement, liquidity ratio, foreign exchange and gross domestic product
The regression coefficients show that every 1% increase in lending rate, cash reserve requirement and liquidity ratios for commercial banks will cause their loans and advances to change by 0.9%, 0.12% and 0.04% respectively
Summary
Lending which may be on short, medium or long-term basis is one of the services that commercial banks do render to their customers. Commercial banks are the most important savings, mobilization and financial resource allocation institutions. These roles make them an important phenomenon in economic growth and development. In performing this role, it must be realized that banks have the potential, scope and prospects for mobilizing financial resources and allocating them to productive investments. No matter the sources of the generation of income or the economic policies of the country, commercial banks would be interested in giving out loans and advances to their numerous customers bearing in mind, the three principles guiding their operations which are, profitability, liquidity and solvency. Commercial banks decisions to lend out loans are influenced by a lot of factors such as the prevailing interest rate, the volume of deposits, the level of their domestic and foreign investment, banks liquidity ratio, prestige and public recognition to mention a few
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