Sectoral Allocation of Deposit Money Banks’ Credit and the Growth of Nigerian Real Economy: A Disaggregated Analysis (2008Q1 – 2017Q4)

Abstract

In this study, the effect of sectoral allocation of deposit money banks’ credit on the growth of the Nigerian real economy from 2008Q1 to 2017Q4 was evaluated. We were inspired by the unsettled disparity in empirical literature on the effect of sectoral allocation of deposit money banks credit on the growth of the real economy. Specifically, we ascertained the effect of deposit money banks' sectoral credit on agricultural, industrial, building & construction and wholesale & retail trade contribution to real gross domestic product. The study was pursued within the finance-led growth framework given the increased support for this theory in existing literature using an ex-post facto research design. The models we developed were estimated using the Ordinary Least Square (OLS) regression technique. The result of the analysis revealed that deposit money banks' credit to agriculture, industries, building & construction and wholesale & retail trade have no significant effect on agricultural, industrial, building & construction and wholesale & retail trade contribution to real gross domestic product. Deposit money banks should remove the disparagement that the agricultural sector is not viable, and lend to farmers with genuine needs for funds at a low interest rate. The Central Bank of Nigeria can equally play a critical role in reducing the interest rate charged by deposit money banks in extending credit to the economy by cutting down the monetary policy rate to a single digit compared to the current double digit of 14%. Government should spend more on capital project in basic infrastructure to attract investments in the economy.