An Examination of the Factors that Influence the Provision of Credit to the Private Sector in Nigeria
DOI:
https://doi.org/10.57125/FEL.2023.12.25.06Keywords:
private sector credit, broad money supply, bank reserves, exchange rateAbstract
The determinants of private sector credit investigation are a topic that should inspire domestic investors and policy makers, more so in a country like Nigeria where investment funding is constrained by several factors. The objective of the present study was to investigate the factors that influenced the credit to the private sector in Nigeria. By including foreign interest rate, the study improved on existing literature as it accommodates the impact of exogenous factor that could influence the domestic credit provision in Nigeria. This study employed both the Fully Modified Ordinary Least Squares (FMOLS) and the Dynamic Ordinary Least Squares (DOLS) with monthly series that spanned the period from 2007M1 to 2021M12 to determine the factors that influence private sector credit in Nigeria. The used variables were: the private sector credit, bank reserves, (PhD Economics), the exchange rate, federal funds rate, prime lending rate, broad money supply and inflation rate. The study revealed that a long-run relationship existed among the variables. In addition, the exchange rate and the US federal fund rate negatively and significantly impacted on the private sector credit in the two models. However, the broad money supply, inflation rate, bank reserves and prime lending rate were shown to impact positively and significantly on the private sector credit. The study concluded that even though boosting domestic credit provision was paramount, excess credit extension could affect the achievement of macroeconomic objectives of price and exchange rate stability. Consequently, it is the contention of the study that fiscal measures should be aligned with monetary policy measures in order to improve the productivity. The improved productivity is capable of controlling inflation and fluctuations in the exchange rate, thereby relieving the pressure on the monetary authorities to boost domestic credit on one hand and on the other hand struggle to maintain both price and exchange rate stability.
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