Importance of Bank Lending on Economic Growth in Nigeria (1981-2015) : Current School News

Importance of Bank Lending on Economic Growth in Nigeria (1981-2015)

Filed in Current Projects by on September 13, 2022

Importance of Bank Lending on Economic Growth in Nigeria (1981-2015).


This study investigates the impact of bank lending on economic growth in Nigeria from 1981-2015, and specifically sought to evaluate the impact of bank lending to the private sector on economic growth in Nigeria.

An error correction model was estimated using annual time series data of a gross domestic product, credit to the private sector, money supply and interest rate collected from the Central Bank of Nigeria Statistical Bulletin and National Bureau of Statistics.

The essence was to determine the short-run impact of credit to the private sector on economic growth as well as to capture the adjustment towards long-run equilibrium.

The study established that in the period under review, credit to the private’s sector has a negative impact on economic growth in Nigeria.

Therefore the study recommends that measures should be put in place to widen the availability as well as the accessibility of credit facilities to those who need it most and also ensure that there are sound policy frameworks that will help minimize interest rates to stimulate economic growth.

That monetary authority must ensure that a mechanism for monitoring of credit facilities must be put in place so as to ensure that loans given to individuals are used for the purpose for which it is collected and assist in making more loan-able funds available for investment in the real sectors of the economy.


1.1 Background of the Study

The relationship between commercial bank lending and growth is one that can have strong consequences for the growth of a country and the viability of large scale, medium scale, and small scale businesses. Lending is the primary function of commercial banks can have strong implications for economic growth in a country.

Bank lending according to Stephen(2012) refers to commercial bank loans and other financial services offered to economic units intended for expansion and other corporate purposes.

Bank lending is a core function of banks in any economy. Bank lending functions by commercial banks can take the form of issuing letters of credit, bank drafts, issuing loans, and other financial services.

Banks accept deposits from the public for safekeeping and then trade with these monies through their lending activities. Banks lend money in various forms and for various activities.

Banks can lend to the private sector for the expansion of their businesses, acquisition of machinery or for starting up new businesses as well as for other purposes, they can also lend to Public sector which can be for the procurement of assets, provision of basic amenities or for the performance of other governmental roles.

Banks can also lend to various sectors such as the industrial, manufacturing, construction, and service sectors. The huge financial outlay involved in either setting up, maintaining, or expanding already existing firms underscores the importance of bank lending or bank financial services.

The development of the financial sector particularly in the provision of loans to economic agents in the economy should lead towards economic growth, thus, the role of bank credit is considered important to economic growth and development (Khan and Senhadji, 2000).


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