Abstract
The purpose of this study was to examine the effect of financial deepening on customer deposit of Nigerian commercial banks. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin, from 1981-2017. Percentage of total customers’ deposit to total assets was used as dependent variables while percentage of narrow money supply, broad money supply, money market development, money outside the bank and private sector credit to gross domestic product was used as independent variables. Multiple regression with ordinary least square properties of cointegration, augment Dickey Fuller unit root test, Granger causality test and vector error correction model was used to examine the relationship between the dependent and the independent variables. The regression result found that narrow money supply and money market development have negative effect on total customer’s deposit of commercial banks while private sector credit, broad money supply and money outside the bank have positive effect on customer’s deposit of commercial banks in Nigeria. The unit root test shows that the variables are stationary at first difference; the cointegration test validates the existence of long run relationship while the causality test found no causal relationship. The study concludes that financial deepening has significant impact on total customer deposit. We recommend that policies should be deepened to enhance the performance of the Nigeria financial market.
Highlights
Commercial banks are the institutional transmission mechanism for monetary policy
The study found that narrow money supply have negative but insignificant effect on total customer deposit of commercial banks such that a unit increase on the variable will lead to 3.7% decrease on the total customer deposit of commercial banks This finding is contrary to the expectation of the results and contradicts the objective of financial sector reforms
The study found that money outside the bank have positive and significant effect on customer deposit such that a unit increase on the variable will lead 29.9% on total customers’ deposit, this finding is contrary to the expectation of the result as money outside the bank is expected to have a negative impact on the liquidity position of commercial banks
Summary
Commercial banks are the institutional transmission mechanism for monetary policy. They facilitate the realization of the monetary policy goals and enhance the functionality of the payment system in Nigeria. Commercial banks are expected to make efforts in both the rural and urban areas for mobilizing savings in the form of their deposits which are beneficial to them and the country as well. Commercial banks deposits can be short term, long term or medium term. It can be government or private sector deposit. Financial sector deepening enable the financial intermediaries perform their functions of mobilizing, pooling and channeling domestic savings into productive capital more effectively thereby contributing to economic growth of a country (Ndege, 2012). Financial sector deepening has been seen www.cribfb.com/journal/index.php/ijfb
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