Private Sector Credit Research Articles

Impact of Financial Deepening on Domestic Investment in Nigeria

This study investigated the impact of financial deepening on domestic investment in Nigeria. The time scope of the study covered the period 2005-2022. The response variable was domestic investment (DI) while the treatment variables were financial deepening indicators (broad money supply, private sector credits, and stock market capitalization. The specific objectives were to investigate the impact of credits to private sector on domestic investment in Nigeria; determine the impact of broad money supply on domestic investment in Nigeria; examine the impact of stock market capitalization on domestic investment in Nigeria; and ascertain the impact of monetary policy interest rate on domestic investment in Nigeria. The study adopted ex post facto research and employed the ARDL technique to analyze the data. Diagnostics and stability tests were applied (unit root, CUSUM and CUSUM of squares). the findings of the study indicated the series to be stationary but of mixed order 1(0) and 1(1); while the cointegration test showed evidence of long-run relationship. The long-run coefficients (of the ARDL) estimation indicated broad money supply has significant positive impact on domestic investment; private sector credit has significant positive impact on domestic investment; and the stock market capitalization has significant positive impact on domestic investment. However, the interest rate indicated to be negative on domestic investment. The policy implication of these findings impinges on government and authorities in the financial sector to develop a roadmap to further deepen the financial space to drive growth in domestic investment. Based on the findings, the study recommended that the financial authority should strategize to satisfy the demand for business investment funds by expanding the broad money supply and the private sector credits. Also, the monetary policy interest rate should be reviewed down in order to reverse its negative effect on investments.

A study on the effectiveness of financial development on economic growth of Morocco

Economic growth’s theories suggest that a developed financial sector can promote the economy growth. However, the ability of financial sector to boost the economic growth depends on its ability to finance the economy. This paper investigates the relationship between Morocco's economic growth and financial development (FD). We base our study on the crucial role of banking sector in economic growth in developing countries through their financial intermediation. In order, to verify this relationship the vector error correction model (VECM) is used on secondary data: real GDP per capita (GDP) and a set of explanatory variables representing the financial development sector, specifically the ratio of private sector credit (CPS) and control variables including the share of government consumption (PC), the real interest rate (IR), trade openness (TO), and the inflation rate (INF). Our secondary data comes from the Central Bank of Morocco database and covers 56 quarters from 2007Q1 to 2020Q4. The findings support the long- and short-term benefits of financial sector development for economic growth in Morocco.

Effect of Financial Deepening on Private Investment in Kenya

Private investment remains an important sector in the growth of the economy and sustainable development in Kenya. It is envisioned to create job opportunities, distribute income and alleviate poverty. The growth rate of private investments witnessed in the past years in Kenya is below the expected growth rate of 24%. Since 1980, the highest growth has been achieved at 15.2% in 2014. It then declined to 12.96% in 2021, 13.34% and 13.40% in 2022 and 2023 respectively, which are much below the projected growth rate. Existing studies in Kenya lack substantial inquiry on the relationship between financial deepening and private investment and have dealt with them separately without linking the two in a dynamic framework. Additionally, most of those studies tend to rely on a limited set of indicators of financial deepening, while employing different methods for analysis that may not be appropriate for unbiased results. The current study intended to determine the effect of financial deepening on private investment. A disaggregated analysis of three aspects of financial deepening was done: private sector credit, broad money and bank deposits. Data was obtained from KNBS and World Development Indicators (WDI) websites for the period between 1980-2021. STATA software was used in the analysis of the collected data. ARDL model was employed and the ECM was estimated since there was cointegration. The regression results indicated that Private sector credit, Broad money and Bank deposits were statistically significant at a 1% level in the short run. An increase in 1 percent of private sector credit, Broad money and Bank deposits cause private investment to increase by 0.32, 0.39 and 0.49 percent respectively. The findings show that financial deepening has a positive effect, while broad money and bank deposits have negative effect on private investment in the long run. The three models were good predictors of private investment as shown by R-squared values of 0.96, 0.94 and 0.94 respectively. The study concluded that financial deepening is important for growth of private investment in Kenya. Therefore, Financial intermediation theory is applicable in Kenya. The study recommends policymakers to conceptualize the policies that aim at facilitating financial access and inclusion for the marginalized groups in remote and rural areas. Further, the government needs to support financial sector through enhancing the growth of microfinance institutions. This will facilitate provision of credit and savings services to individuals earning low-income and owning small businesses.

Effect of financial development on economic performance in Nigeria

This study empirically investigated and examined the effect of financial development on economic performance in Nigeria covering the period of 32 years spanning from 1990 to 2022. The study utilized of five (5) financial development proxies namely ratio of broad money to gross domestic product (M2GDP), ratio of credit to private sector to GDP (CPSGDP), ratio of domestic credit to GDP (DCGDP), foreign direct investment, (FDI), Government expenditure to GDP (GEGDP), and three (3) control variables; interest rate (INTR), served as the independent variables while one (1) economic performance variables namely ; Inflation rate (INFR) and Corruption (COR) GDP Growth Rate which served as the dependent variables in the study. Data were sourced from World Bank and Macro Trends and Transparency International Corruption from 1990 to 2023. Multiple regression model technique via E- view software 9.0 was adopted to test the hypotheses in the study. The result revealed that only ratio of domestic credit to GDP (DCGDP), foreign direct investment, (FDI), and interest rate (INTR), was found to have an insignificant positive effect on GDP growth rate while ratio of broad money to gross domestic product (M2GDP), ratio of credit to private sector to GDP (CPSGDP), Government expenditure to GDP (GEGDP), Inflation rate (INFR) and Corruption (COR) was found to have an significant negative effect on GDP growth rate. Thus, we concluded that there are both positive and negative significant impacts of financial development on the economic performance in Nigeria for years under review using the model of specifications i.e. GDP growth rate. To this end, we recommend that CBN should stimulate GDP growth rate by increasing proportionately to GDP, the volumes of money supply and private sector credits. This can be achieved through open market operation and reducing the cost of borrowing.

Asymmetric Analysis of Macroeconomic and Financial Determinants of Deposit Money Banks Performance in Nigeria

The performance of the banking industry is influenced by the economic, social, and political context in which it functions. The significant impact of the macroeconomic and financial environment on the performance of DMBs in Nigeria is apparent. The asymmetrical analysis of macroeconomic and financial factors influencing the performance of DMBs in Nigeria was investigated in this study. The researchers decided to use an ex-post-facto design. The data used in this study were obtained from the CBN annual statistics bulletin and the NBS. The NARDL methodology was used to conduct data analysis. The individual is referred to as Phillip-Peron. Unit root tests have shown a varied level of integration, although co-integration. The use of bounds testing methodology has provided evidence supporting the presence of a long-term association between the independent and dependent variables. The results indicate that the gross domestic product and all share index of the capital market have a favorable impact on DMBs in Nigeria. Conversely, inflation, monetary policy rate, and private sector credit have a negative influence on DMBs in Nigeria. The study recommended, among others, that the Federal Government should be committed to implementing economic policies aimed at accelerating rapid economic growth for the enhanced performance of DMBs in Nigeria, and the CBN should be more dynamic and strategic with the monetary policy rate (MPR) to ensure an efficient interest rate charged by DMBs.

National debt management and business sustainability in Africa's largest economy: A focus on the private sector.

In many developing economies, high and increasing public debt profile constitutes an essential means of financial risk. An appropriate debt management is germane for survival of business and good international reputation though its effect on private sector credit mobilization had been seldomly investigated. This study seeks to know whether strategic debt management approach exacts a significant effect on the Nigerian private sector and Africa at large resulting to higher credit availability for sustainable enterprise establishment. The study used a time-series observation spanning from 1981-2021. The method of data analysis employed the unit root test for stationarity. Johansen cointegration and vector error correction approach. The result of the unit root test indicates the series were all stationary after first difference and thus were integrated of order1. The Johansen cointegration test support the existence of a cointegrating series between the private credit and its determinants. More empirical evidence from the study shows that proper debt management and increase revenue generation through net taxes on products accounted for 0.93 and 1.32% increase in private sector credit mobilization, while total external debt stock was responsible for a significant negative influence of 0.60% on private sector credit mobilization. The study recommends that the government should always be proactive in their strategic and innovative approach to debt management, revenue generation and sources of funds. This will help not only to avoid crowding out of the private sector but will enhance adequate credit mobilization for effective operations of the private sector.

An Investigation of the Impact of Financial Liberalization Reforms on Credit to the Private Sector in Nigeria

This study examines the effects of financial liberalization on credit to the private sector in the Nigerian economy from 2000 to 2021. This was aimed at ascertaining how DEP representing banking sector deposits, IRS representing interest rate spread and MPR representing monetary policy rates has stimulated the credit to the private sector in Nigeria. Historical data was collated and estimated employing the ARDL form of Ordinary Least Squares (OLS) technique. The empirical results indicate that bank deposits was positively significant to private sector credits while monetary policy rates were negatively significant. On the contrary, interest rate spread had negative impact but not statistically significant. On the basis of the findings of this study, the following recommendations are made.The monetary authorities have to regularly review their monetary policy direction to bring monetary policy rates lower than it is. Policies that reduce interest rate spread be pursued to enhance the performance of the credit to the private sector.

Exploring the Nexus of Domestic Debt and Private Sector Credit in Developing Countries with a Focus on Bangladesh

This research examines domestic debt, private sector lending, and economic development in emerging countries, focusing on Bangladesh. This analysis uses 1960–2022 Bangladeshi secondary data, World Bank World Development Indicators and Bangladesh Ministry of Finance economic statistics. Domestic debt and private sector credit affect emerging nations' economic development, according to this study's theoretical approach. This research examines the link between two factors to add to the literature and provide Bangladesh-specific insights. It is quantitative research that examines domestic debt, private sector credit, and economic development using regression analysis and statistical testing. The conclusions aids Bangladesh's economic development policymakers, economists, and stakeholders. Understanding national debt, financing from the private sector, and the advancement of the country's economy helps policymakers manage debt, allocate credit, and set economic policy. The conducted study also improves theoretical understanding of economic development in underdeveloped countries and illuminates Bangladesh's unique conditions. It examined household debt, private sector lending, and Bangladeshi economic development as well as examines the patterns of economic growth in emerging nations to enhance policy debates and broaden knowledge.

Inclusive business, private sector credit and economic welfare: evidence from Africa

PurposeThis paper seeks to examine the interrelationship between inclusive business, private sector credit and economic welfare in Africa.Design/methodology/approachThe study uses the seemingly unrelated regression, system generalized method of moments and bootstrap quantile regression in a panel of 54 economies in Africa, over the period 2006–2020.FindingsThe authors show that countries that provide more credit to the private sector have better incentives to enhance the ease of doing business. The authors find that ease of doing business and domestic credit to the private sector have a positive and significant effect on economic welfare at higher quantile levels. The authors find that ease of doing business substitutes private sector credit to boost economic welfare, while business account complements private sector credit to boost economic welfare. The authors show that the marginal effect of inclusive business on economic welfare is greater in countries that provide more credit to the private sector.Practical implicationsThe implication is that countries that focus on developing their private sector (through credit expansion) should be able to encourage or facilitate the inclusion of businesses to achieve a sustainable economic welfare.Social implicationsThe implication is that policymakers should be able to develop their business environment through inclusive financing so as to build business confidence in the society.Originality/valueThe paper examines the interrelationship between inclusive business, private sector credit and economic welfare in Africa.

Financial Intermediation and Economic Growth: Evidence from Nepal

Purpose - This study aims to investigate the role of financial intermediation in Nepalese economic growth using time-series data over the period from 1974 to 2019. In order to establish the relationship, GDP per capita is used as a proxy for economic growth, while private sector credit, commercial bank assets, and the broad money supply serve as proxy measures of financial intermediation.
 Design/Methodology/Approach - To obtain empirical results, the Johansen test of co-integration, the vector error correction model, and the Granger causality test are applied.
 Findings - The results support finance-led growth in Nepal, implying that financial intermediation is positively associated with economic growth in the long run. A positive association with total trade was observed in the short run, but a negative effect was found in the long run. Granger causality tests indicate that the broad money supply and commercial bank assets are bidirectionally related to Nepal’s economic growth, while private sector credit is unidirectional.
 Research Implications - The findings suggest that if central bank authorities prioritized monetary policy tools, it may foster economic growth in Nepal in both the short- and long terms. In addition, for the persistent growth of the Nepalese economy, the banking sector should be reformed by employing more liberal policies. The study also suggests that policymakers should take immediate action to correct the direction of Nepalese foreign trade.

AN INSPECTION OF THE RELATIONSHIP BETWEEN THE INSURANCE AND BANKING SECTORS IN TÜRKİYE: A TIME-VARYING ASYMMETRIC CAUSAL RELATIONSHIP

Using yearly data from the Turkish insurance and banking sectors, the current research investigates the relationship between the insurance and banking sectors for the years 1983 to 2020. In contrast to earlier studies in the literature, the time-varying asymmetric causality test was implemented to see how the variables were linked within the different sub-periods. According to the asymmetric Hatemi-j (2012) causality test, it has been discovered that there exists a bidirectional causality between both positive and negative shocks of the total insurance density (TID), broad money supply (BRM) and private sector credit (PSC) variables. Time-Varying test results have shown that there is an asymmetric causality relationship between the data for only a short period and this causality relationship is not permanent.

Monetary policy variables and return on equity: Empirical evidence of quoted insurance firms in Nigeria

This study examined the effect of monetary policy variables and return equity of quoted insurance firms in Nigeria. Secondary data were obtained from the financial statement of 15 quoted insurance firms and the Central Bank of Nigeria Statistical Bulletin. The study modelled return on equity as the dependent variables while money supply, private sector credit, monetary policy rate, treasury bill rate and real interest rate as independent variables. Panel data methodology is employed while the fixed effects model was used as estimation technique at a 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. From the findings, the study conclude that money supply and real interest rate have negative but no significant effect on the return on equity. Monetary policy rate and private sector credit have a positive and significant effect while the Treasury Bill Rate have a positive but no significant effect on the return on equity of the insurance firms. It recommends that the management of the insurance companies should devise measures of managing the negative effect of monetary policy instruments on the performance of the insurance companies and the monetary authorities should harmonize the profitability objectives of the insurance companies with that of monetary policy to avert the negative effect on return on equity of the quoted insurance firms.

Banks' credit to the private sector and economic growth in Nigeria: The moderating role of digitalization

Inspired by the desire to take a unique trajectory with the greater goal of new knowledge addition, this study examined the moderating effect of digitalization on the triangular relationship between digitalization, banks’ credit to private sector and economic growth in Nigeria for 2009 – 2021. The highly debatable direction of the relationship between credit to the private sector and economic growth in Nigeria has remained unresolved; by throwing digitalization in the mix, this study seeks to ascertain if there is a substantial shift in the direction of the subsisting argument with refence to Nigeria. The Autoregressive Distributed Lag (ARDL) approach was applied due to the mixed order of integration results obtained from the Unit Roots Test, which accounted for some structural breaks. For this study, the long-run results carry more prominence than the short-run since there is inherent room for adjustments. The empirical results show that private sector credit has a positive and significant impact on economic growth in Nigeria in the short run. However, in the long run, credit to private sector has a positive and insignificant impact on economic growth in Nigeria. The results also revealed that ddigitalization does not moderate the effect of banks' credit to the private sector on economic growth in Nigeria for the period reviewed. Because of the strategic role of financial intermediation played by deposit money banks, the paper supports the ongoing efforts of the Central Bank of Nigeria (CBN) in deepening the integration of digitalization into the financial services sector.

Educational Investment and Unemployment in Nigeria

Education is a fundamental human right and is essential for the development and progress of any nation. It is a general belief that educated individuals fare better in the labour market than the less educated. This study empirically examines investment and expenditures in education, and its influence on unemployment rate in Nigeria from 1991 to 2021. Unit root test, ARDL approach, bound test, Breusch Godfrey serial correlation LM test and the CUSUM test were employed. Unemployment rate (UER) was used as the dependent variable while Federal government recurrent expenditure (GEE), credit to private sector (CPS), average of school enrollment rate (ASE) as proxy for literacy rate, labour force participation rate (LFP) and gross fixed capital formation (GFCF) as the independent variables. Findings revealed that apart from UEM that is stationary at the level, the other variables are stationary at first difference given the 5% level of significance. Labour force participation rate is statistically significant. There is an insignificant positive relationship between government recurrent expenditure on education and unemployment rate in the long -run. On the other hand, credit to private sector, school enrolment rate, and gross fixed capital formation all conform to their a priori expectations, but are insignificant, i.e., statistically indifferent from zero. The study recommended among others that an actionable and working fiscal policy in the educational sector should be established and government should improve on the quality of institutions through better teacher training, investment in educational research development, and the establishment of vocational training centers that provide practical skills to students.

Monetary Policy and People’s Socio-Economic Welfare in Nigeria

This study examined the effect of monetary policy on the socio-economic welfare of Nigerians between1980 and 2021 from three perspectives: income, health and education. We assessed the short and long run effects of six monetary policy variables (lending rate, savings deposit rate, liquidity ratio, monetary policy rate, loan deposit ratio and private sector credit to gross domestic product ratio) and inflation (control variable on three different socio-economic welfare variables (gross domestic product per capita, child mortality rate and primary and secondary school enrolment) during the study period.Results of the auto-regressive distributed lag (ARDL) technique show thatrevealed interest rate, liquidity rate and private sector credit have negative and significant effect on the per capita income while savings deposit rate, monetary policy rate, loan deposit rate and inflationhvesa positive and significant on per capita income. In the long run liquidity ratio and monetary policy rate have significant positive effect on income per capita while the ratio of private sector credit to GDP has a significant negative effect on it. Inflation has a positive but insignificant effect on per capita income. Furthermore, in the short run, all the selected monetary policy variables have significant effects on child mortality rate. While the effect of interest rate, liquidity ratio and monetary policy rate is negative, that of savings deposit rate, loan deposit ratio, private sector credit and inflation is positive. On the long run, interest rate, private sector credit and inflation have positive effect on child mortality but whereas the effect of interest rate is insignificant, the other two have significant effect. Regarding number of school enrolment, in the short run, interest rate has a negatively significant effect while liquidity ratio, loan deposit ratio and inflation have direct positive effect on it. Savings deposit rate has an insignificant positive effect on it while private sector credit has a negative insignificant effect on it. On the long run, interest rate, private sector credit and inflation have an insignificant positive effect on the number of primary and secondary school enrolment. Savings deposit rate, monetary policy rate and loan deposit ratio have insignificant negative effect on it. The effect of liquidity ratio is significantly positive. The study concluded that monetary policy has significant effect the socio-economic welfare life of Nigerians both in the short and long run. The study recommends the sustenance of the existing liquidity ratio and monetary policy rate due to their favourable effects on the people’s welfare.

Determinants of Exchange Rate Crisis in the Nigeria Economy

The study examined the causes of exchange rate crises in Nigeria between 1986 and 2021. In particular, we investigate how the trade balance (LNBOP), oil price (COP), external debt (LNEXDS), and private sector credit (LNPSC) influence Nigeria’s exchange rate (EXR). The statistical bulletin of the Central Bank of Nigeria and the Nigeria Bureau of Statistics provided the study’s data. At the 5% level, descriptive statistics, the stationarity test, Johansen cointegration, VAR, and VAR Block Granger Causality were utilised. The variables were integrated at first difference for the stationarity test, yielding the Johansen cointegration test, which indicates a co-integrating relationship. LNEXDS and LNPSC are negative and significant in relation to EXR, whereas LNBOP and COP are negative but not significant. Only LNPSC and LNEXDS support REER for the VAR Block Granger Causality test, but all variables support EXR collectively. External debt and private sector credit are the primary determinants of the naira exchange crisis in Nigeria. The federal government of Nigeria should utilise less external debt since it weakens the country’s exchange rate position. In addition, the federal government of Nigeria should collaborate with producers to develop and integrate local content into their production processes in order to reduce the burden on EXR.

Regulatory Institutions and National Economic Development in Nigeria

The financial sector is the epicenter of productive activity of an economy as it performs the vital role of financial intermediation, provider of payment services and the arbiter of monetary policy communication and implementation. Therefore, the objective of the study is to examine the effect of CBN as a regulatory institution on national economic development in Nigeria. The study used ex-post facto research design and the study covered a period of ten years (2011 – 2020). The study employed ordinary least square (OLS) method of estimation to establish the importance of the independent variables on the dependent’s variables. The findings revealed that Monetary policy Rate (MPR) has insignificant positive (202.2958/0.2296 ˃ 0.05) effect on the National Economic Development in Nigeria; Credit to Private Sector (CPS) has insignificant negative (-208.6998/0.1319 ˃ 0.05) effect on the National Economic Development in Nigeria; Liquidity Ratio (LQR) has significant negative (-57.09290/0.0503 = 0.05) effect liquidity ratio on the National Economic Development in Nigeria; and Interest rate (INT) has insignificant negative (-274.8069/0.1717 ˃ 0.05) effect liquidity ratio on the National Economic Development in Nigeria. The study concluded that the CBN current policies has been anti-people and over the years not having significant effect on economic development in Nigeria. The study recommended among other things that CBN should critically re-examines its regulatory policies to focus more on visionary policies that would cause the financial deepening indicators, monetary policy rate and exchange rate to positively and significantly engender development of the financial system. Central Bank of Nigeria should check mate their policy rates to ensure the prevention of inflation in the economy.

Access to Finance and Human Development in Sub-Saharan Africa

The study examines the relationship between access to finance and human development in Sub-Saharan Africa. The study used a panel data covering the period 2004–2021and employed the two-step system Generalized Method of Moments for the analysis of the data. The indicators of financial access used in the study are number of bank branches, commercial bank private sector credits and number of automatic teller machines (ATM) per. The study found that commercial bank private sector credits and number of number of automatic teller machines per 1000 adults have a positive and significant relationship with human development index in Sub-Saharan Africa. Base on the findings, the study recommends that the government of various Sub-Saharan African countries should intensify efforts to increase the access to financial services for the poor and low income group. This include reducing the costs and charges on credits for the low income earners and building more bank agents and automatic teller machines that will provide financial services to the populace especially the unbanked. The findings of the study lead to the conclusion that most Sub-Saharan African countries need to do more to boost access to finance for the unbanked and low income earners.

Monetary Policy Tools and Nigeria’s Manufacturing Sector Output

Manufacturing sector output has been experiencing dwindling output over the years, despite the efforts by the monetary authorities. Manufacturing sector in any economy is seen as one of the drivers of industrialization and economic development, as such government policies affect their performance. Hence, this paper examined the asymmetric effect of monetary policy tools on Nigeria’s manufacturing sector output between 1986 and 2022. Non-linear Autoregressive Distributed Lag (NARDL) method was adopted in carrying out empirical analysis. Cointegration using bounds test revealed the variables have long-run relationship. Findings from the paper revealed that positive effect of private sector credit has a corresponding positive impact on manufacturing sector output. While the negative effect led to a decrease in the output. Further findings showed that positive effect of monetary policy rate led to an increase in manufacturing sector output; while the negative effect led to a decrease in manufacturing sector output. Both variables were found to have statistically insignificant relationship with manufacturing sector output in Nigeria during the period covered. Based on these findings, the monetary authorities are encouraged to continue with improving programmes or schemes that will lead to more funding for the manufacturing; and are encouraged to take into account monetary policy that captures the economic reality on the ground.

Financial Deepening in Nepal: An Asymmetric Analysis With Per Capita Income and Private Sector Credit

This study examines the asymmetric relationship between private sector credit and per capita income defining financial deepening using annual time-series data from 1994 to 2021. The analysis employed Zivot unit-root testing to identify a significant break in the model and NARDL cointegration analysis to account for this structural break, while also assessing the long-term asymmetric relationship. Findings suggested a cointegrating relationship with private sector credit, indicating that positive shocks in private sector credit contribute to its growth, thereby boosting per capita income and promoting financial deepening in Nepal. Although short-term negative shocks in the private sector were notable, their impact on long-term income growth was minimal. The study highlights the government's role in fostering positive growth of private sector credit to enhance financial deepening in Nepal, cautioning against excessive credit disbursement during recessions or crises, which could undermine financial deepening in the long run; however, the short-run policy revisions during the time of crises are thinkable. This study addresses a geographical gap in prior research by incorporating nonlinearity and structural break unit-root tests, previously unexplored, thereby introducing a novel contribution to the existing body of literature.