The effect of deposit money banks credit on Nigerian economic growth

This study examined the effect of bank credit to the private sector on economic growth in Nigeria using data on Gross Domestic Product (GDP) and bank credit to private sector (BCPS). Inflation and interest rates were included in the study as control variables. All data were obtained from Central Bank of Nigeria (CBN) statistical bulletin and span across 1981 to 2010. Data stationarity were ensured using the Augmented Dickey Fuller (ADF) statistic, while the OLS were applied to ascertain the impact of bank credit to the private sector on economic growth. Results of the analysis showed that bank credit to private sectors has a statistical strong positive relationship with GDP and that as expected, bank credit to the private sector has statistically significant effect on economic growth. The paper recommends that the CBN should lower its minimum rediscount rate to a moderate level that will enable banks fix low interest rates on their loanable funds while adopting direct credit control to favour preferred sectors like Agriculture and manufacturing. Finally, monetary authorities should through monetary policy reduce legal reserves requirement for banks to enable the banking sector to create more credit for the economy. This will enhance investment, job and employment opportunities which on the other hand will boast economic growth in the country.