Analysis of Empirical Relationship among Agricultural Lending, Agricultural Growth and Non-Performing Loans in Nigerian Banking System

Increasing levels in Non-Performing loans (NPLs) which has remained an area of great concern contributed to issue of declining agribusiness activities in Nigeria in the 1990s and thereafter. The study examined non-performing loans relationship with agricultural lending and agricultural productivity from 1980 to 2015 in Nigeria. Time series data obtained from CBN were analyzed using, Granger causality test, Pearson correlation, and co-integration as well as error correction models. The empirical analyses revealed that, bilateral Granger causality existed between loans and advances granted to agricultural sector and non-performing loans in Nigeria. Also, growth in GDP has a positive and significant correlation with NPL in Nigeria. In the long run, NPL is positively related to agricultural productivity, growth in the GDP and value of loans and advances offered to agricultural sector. Whereas, in the short run, NPL reacted significantly to the negative influence of interest rate and positive impact of GDP growth rate. The adjustment coefficient of 52% was discovered for the NPL long run equation in Nigeria. It is recommended that short and long- term banking reform policies be adopted to reduce fluctuations in NPLs in the banking system and efforts should be geared towards increased participation of specialized financial institutions as to accelerate investments in agriculture sector.