Bank credit dynamics and its influence on output growth in the Nigerian economy

The research investigates challenges faced by investors in Nigeria despite government efforts to promote credit expansion in the private sector. The primary obstacle identified is financial exclusion, coupled with limited access to credit. The study spans from 1980 to 2022 and measures credit expansion using parameters such as credit to the private sector and deposits at rural bank branches. Other relevant variables, including exchange rates and interest rates, are considered. Economic growth, indicated by the growth rate of real gross domestic product, serves as the benchmark for assessing the impact of credit expansion. The Autoregressive Distributive Lag (ARDL) estimation technique is used to analyze short and long-term relationships among variables. The study establishes a long-term relationship among the variables, emphasizing the substantial impact of credit on Nigeria's economic growth. The Error Correction Mechanism (ECM) results within the ARDL framework underscore this impact. The study recommends that policymakers, particularly the Central Bank of Nigeria, actively promote financial inclusion by expanding loans through commercial banks. Encouraging commercial banks to consistently increase credit to the private sector, with a focus on low single-digit interest rates, is crucial. Additionally, the research advocates for careful structuring and supervision of deposit money banks to ensure allocated funds are used appropriately and not diverted to less productive ventures.