Banking soundness and safety is crucial for the stability of any financial system in the world. Financial system regulators understand that a loss of confidence in the banking system can have devastating consequences on the entire financial system. For this reason, banking stability has always been a top regulatory and supervisory policy objective for regulators. Nigeria, whose banking sector is ranked 'third' in Africa after South Africa and Egypt has experienced many episodes of financial and economic recession which has brought the fragility of Nigerian banking and finance to the front burner of discourse by academics and policy makers (Ozili, 2019). Stability of the financial system in an economy is an important catalyst for economic growth due to its function in facilitating exchange of value (Swamy, 2014). The financial sector, facilitate the flow of funds from surplus households to deficit households in a more efficient manner, thereby promoting economic growth and development (Ratnovski, 2013). Consequently, Deposit money banks need to proactively study the operating environment and develop relevant strategies that would reduce the severity of their exposure to situations that are likely to affect their financial stability. Huang and Ratnovski (2011) believed that an adequate regulatory mechanism beyond the traditional reserve requirements should be enforced to address and mitigate the systemic component of funding liquidity risk among commercial banks. The reserve ratios made by each bank may not be adequate for the liquidity exposure they face as they are subjectively determined. Allam (2013) contends further that some commercial banks set their liquidity levels through mimicking behavior in liquidity choices which may also arise from learning motives. Commercial banks have to learn, adopt and reorient themselves to the changing environment if they are to be competitive and perform their intermediation role effectively. The banking industry just like other industry is faced with turbulence arising from increased globalization, internationalization, advancements in information, communication and technology and trade liberalization. Commercial banks therefore, ought to engage themselves in strategies that will enable them to respond to the environmental challenges in order to gain competitive advantage (Saheed, 2018). The Central Bank of Nigeria (CBN) was established in 1957 in order to guide the activities of commercial banks in the country among other functions. Regulations and supervisions have become imperative in the enforcement of rule and regulation and also in the judgment concerning the soundness of bank asset, bank management and capital adequacy (Adeyemi & Asaolu, 2013). Prudential guidelines issued by CBN are to reduce the level of risk to which bank creditors are exposed and Bank supervision entails enforcement of rule and regulation and judgment concerning the soundness of bank asset, its capital adequacy and management (Akinkunmi, 2014). The regulations creates an air of transparency in the...
This study provides empirical evidence on what determines bank lending in Nigeria by considering the pre and post consolidation effect and interaction effect using annual data from 1990-2019. This study employs multiple regression analysis. The regression model examines the effect of total savings (TOS), non-performing loan rate (NPLR) and number of bank branches (NBB) on credit to private sector (CPS). The study also investigates the interaction effect of total savings and Number of bank branches in explaining the combined factors that influences Nigerian Commercial Banks' lending. The regression results reveal that before and after structural break, none of the variables is significant to determine commercial bank lending in Nigeria. It also reveals that prior to consolidation only TOS and NPLR had positive effect on CPS while all the variables had negative effects on CPS after consolidation period. From the result of the interaction effect, it's evident that the direct effect of total savings, Number of bank Branches and Non-performing loan on credit to private sectors is positive while only total savings and Nonperforming loan exact significant effects. The interaction effect of total savings and Number of bank branches shows a negative but significant relationship with credit to private sector. This study therefore concludes that there exists an interaction effect in the model and that none of the variables is significant in determining commercial bank lending in Nigeria before and after consolidation. However, the multiplicative effect of total savings and number of branches on commercial bank lending behavior is significant. Therefore, the study recommends that total savings, non-performing loans and Number of bank branches should be jointly managed and utilized to control bank lending behavior in Nigeria.
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