Effect of Bank Credit to the Private Sector on the Performance of Manufacturing Sector in Nigeria

Abstract

The study investigated the effect of bank credit to the private sector on the performance of manufacturing sector in Nigeria, from 1981 – 2021. The objective of the study is to determine the effect of bank credit to the private sector (CPS) on the manufacturing output in Nigeria. To carry out the study, data were sourced from the Central Bank of Nigeria statistical bulletin and National Bureau of Statistics for various years. The dependent variable for the study was manufacturing output while the proxies for exploratory variable include; credit to the private sector (CPS); interest and exchange rates. For analysis and estimation, Autoregressive Distributed Lag (ARDL) method was adopted. Augmented Dicker Fuller (ADF) tests for stationarity showed that the variables were integrated at first level while ARDL Bound tests established a cointegration relationship of the variables. The result of the study revealed that credit to the private sector (CPS), interest rate; and exchange rate (independent variables) on the aggregate accounted for 93.9% of the total variations on manufacturing output (dependent variable) in Nigeria during the study period while 6.1% was due to stochastic error. The result further found out exchange rate had a positive coefficient value and a significant impact on manufacturing output in Nigeria during the period of study while other explanatory variables that include credit to the private sector and interest rate were statistically insignificant on manufacturing GDP during the study period. On the basis of the findings, the researcher recommends that Central bank of Nigeria as an apex bank should apart from using both direct and indirect controls should strengthen the use of moral suasion to encourage banks not to relent in granting the sector as the government endeavours to diversify the revenue sources of the economy. Secondly, government and Central Bank of Nigeria (the apex regulatory body of banks) should take bold steps and use all necessary economic and financial policies and regulations to make lending a single digit interest rate in Nigeria especially in a critical sector like agriculture.