Investigating the Factors Influencing Commercial Bank Lending in Nigeria: A Consolidation and Interaction Effect

Abstract

This study provides empirical evidence on what determines bank lending in Nigeria by considering the pre and post consolidation effect and interaction effect using annual data from 1990-2019. This study employs multiple regression analysis. The regression model examines the effect of total savings (TOS), non- performing loan rate (NPLR) and number of bank branches (NBB) on credit to private sector (CPS). The study also investigates the interaction effect of total savings and Number of bank branches in explaining the combined factors that influences Nigerian Commercial Banks’ lending. The regression results reveal that before and after structural break, none of the variables is significant to determine commercial bank lending in Nigeria. It also reveals that prior to consolidation only TOS and NPLR had positive effect on CPS while all the variables had negative effects on CPS after consolidation period. From the result of the interaction effect, it’s evident that the direct effect of total savings, Number of bank Branches and Non-performing loan on credit to private sectors is positive while only total savings and Nonperforming loan exact significant effects. The interaction effect of total savings and Number of bank branches shows a negative but significant relationship with credit to private sector. This study therefore concludes that there exists an interaction effect in the model and that none of the variables is significant in determining commercial bank lending in Nigeria before and after consolidation. However, the multiplicative effect of total savings and number of branches on commercial bank lending behavior is significant. Therefore, the study recommends that total savings, non-performing loans and Number of bank branches should be jointly managed and utilized to control bank lending behavior in Nigeria.