BANKS’ CREDITS AND ECONOMIC GROWTH IN NIGERIA A SECTORAL ALLOCATION APPROACH

Acknowledging the significance of bank credits as a veritable avenue through which the gap in the availability of capital, needed for the production of goods and services, can be bridged for consequent increase in output. The study examined the relationship between deposit money banks’ sectoral allocation of credits and economic growth in Nigeria. Specifically, the study investigated the impact of deposit money banks’ credit allocated to the production, general commerce, service and ‘others’ sectors on real gross domestic product in Nigeria. The Augmented Dickey Fuller (ADF) unit root test, Johansen approach to co-integration, error correction model (ECM) and Granger causality test were applied on annual time-series from 1981 to 2022. The findings indicated the presence of long-run (equilibrium) relationship between sectoral bank credit allocation and aggregate output in Nigeria. Specifically, the estimated regression result showed that bank credit allocated to the production, service and ‘others’ sectors have significant positive impact on real gross domestic product. On the other hand, bank credit allocated to general commerce sector has insignificant impact on real gross domestic product. These results were also corroborated by the outcome of Granger causality tests which indicated a significant bi-directional causality between credit to production sector and real gross domestic product. The study therefore therefore concluded that banks contributed immensely to the growth of the Nigerian economy during the period under review. Following the conclusion, the study therefore recommended among others that banks should be encouraged to lend more to the productive sector (real sector), especially to the preferred agricultural and manufacturing sectors of the economy as they have the capacity to generate employment and drive the economy to sustainable economic growth and development.