Modeling Bank Financial Intermediation Functions: Theoretical and Empirical Evidence from Nigeria

Abstract

This research examined the modeling of the financial intermediation functions of banks in Nigeria. The effectiveness of financial intermediation was determined by its impact on economic growth in Nigeria. Secondary time series data were collected to determine the association between variables. The study adopted an ex post facto research design and used ordinary least squares regression tests that reveal the predictive power of the model as well as the relative statistics of the short-term variables, while testing for the existence of a long-term equilibrium relationship, based on the multivariate cointegration technique performed. The results of the study suggest that there are both short-term and long-term relationships between financial intermediation and economic growth in Nigeria. Specifically, CBCPS has a positive relationship with GDP, while MS and MLR have a positive and significant relationship with GDP in the long run. The study recommends, inter alia, that monetary authorities, in particular the Central Bank of Nigeria, has to use measures to force banks to reduce their interest rates on loans. This will increase investment and enhance the overall performance of the economy's productive sectors.