Response of Banks to Fiscal Policy Stimuli in Nigeria

This study went into much neglected area of research; relationship between fiscal policy instruments and performance of banks in Nigeria. Various finametric tools were used to analyze data collected from Nigerian Deposit Insurance Cooperation and Central Bank of Nigeria for period of 1989 to 2018 inclusive. Resounding empirical findings were made as follows; Bank performance is autoregressive. That suggests that performance of banks in the past cannot be predicting future bank performance. It was conspicuously observed that Capital Expenditure, Non-Oil Revenue and Domestic Debt have positive and significant relationship with bank performance, while Recurrent Expenditure Domestic Debt afterwards negatively and significantly impact bank performance. It was also found that fiscal policy variables (Capital Expenditure, Recurrent Expenditure, Non-Oil Revenue and Domestic Debt) significantly impact bank performance both in the short run and long run. Since fiscal policy variables are found to exert significant impact banks’ performance in Nigeria, the researchers suggests to Federal government of Nigeria as a matter of urgency reconsiders the operation of Treasury Single Account. It is the view of the researchers that the Treasury Single Account be operated through deposit money banks by domesticating various Ministries, Departments and Agencies (MDAs) account with the deposit money banks. Serial Correlation LM Tests P-value of 0.1073, which an indication of non rejection of the null hypothesis, showing evidence no serial correlation. Also Heteroscedasticity Test: ARCH with P-value of 0.4618. This is enough evidence suggesting of homoscedasticity the model.


Introduction
During the classical era, government fiscal policy was understood to mean all the activities of government aimed at procurement or raising and spending or distribution of money to pay for the cost of operating government, with no consideration for employment and output as it is today. Since the great depression of 1930s, the term fiscal policy has been applied to refer to those activities of general finance, which have to do with the reduction of economic instability and the stimulation of employment and long run economic growth. Fiscal policy may also be viewed as an articulated framework detailing how fiscal policy instruments can be varied by government to influence the long run growth of the economy, especially the growth rates of employment and national income (Onoh, 2007).
Onoh (2007) observe that if the instruments of expenditure and receipt are properly synchronized with other macroeconomic policy instruments from the monetary, institutional and the direct economic interventions the arena economy becomes stabilized and the macroeconomic objectives of higher levels of employment, national income and balance of payment equilibrium become realized to a large extent. If fiscal policy instruments are projected without reference to monetary, institution and intervention policies the economy could be in disarray and the desired macroeconomic objectives become illusive and difficult to attain. Fiscal policy should therefore be synchronized with other economic policies and should not be at variance with them.
Apart from the monetary policy, the instruments of fiscal policy should be able to effective and efficiently enhance the performance of banks. This is because imprudent public spending and weak sectoral linkages and other socioeconomic maladies constitute the bane of rapid economic growth and development (Amadi,and Essi, 2006).
The fact that resolving banking sector non performance often involves substantial government expenditure means that the fiscal balance become a constraint on the type of corrective action that can be taken. Banking sector problem are often known but ignored, and regulatory and supervisory authorities are most at times prevented from intervening in the banks because this would bring the problems out in the open and trigger government expenditure. The justifications for inaction are that there is no room in the budget or that the fiscal situation is too weak to allow for any consideration of banking problems.
Despite the aforementioned, Lindgren, Garcia and Saal (1996), suggested that, it is essential for efficient resource allocation so that banking system problems will not be swept under the rug in fiscal policy formulation. The government's full costs, including estimated contingency costs, need to be taken into consideration in a transparent way. This called for this study; Response of Banks to Fiscal Policy Stimuli. This is to know how banks react to fiscal policy measures in Nigeria.
The remaining sections of this study are arranged as follows; section two jointly reviews related literature; section three takes care of the methodology; section four analyses the data and interpret results, whereas section five is about concluding remarks and recommendations,, finally section six handles suggestion for further studies

Method of Study 3.1. Sample Data Collection
Taking insight from Njoku (2009) who defined fiscal policy as changes in taxes, expenditure and borrowing, this aims at achieving short run stability. The following variables emanated therein; Capital Expenditure (CEX) and Recurrent Expenditure (REX) for expenditure, Non-Oil Revenue (NOR) standing for all forms of Tax, Domestic Debt (DEBT) standing for borrowing, while Return on Assets (ROA) is proxy of bank performance. The data used are made up 30 observations from 1990 to 2018 standing for the variables were collected from Nigerian Deposit Insurance Cooperation (NDIC) and Central Bank of Nigeria (CBN).

Techniques
To determine the stationarity of the variables, the Augmented Dickey Fuller (ADF) unit root test is employed. For multicollinearity checking, the correlation matrix is used in this study and other relevant global usefulness check. Because of the autoregressive nature of the variables under study, Autoregressive Distributive Lags (ARDL) will engaged estimating the models and will be used as dynamic solution to the static problem of the time series. The ARDL frame work can be used to examine both short run and long run relationships as well as causal impacts (Ogbonna and Ejem, 2019).

4.3: Global Utility Examination and Determination
In the macroeconomic analysis, it is necessary to test the global utility or usefulness of the specified models. To achieve this, the researchers engaged correlation matrix, Normality Test, Serial Correlation Test and Heteroscedasticity Test;  Table 3 below, it is observed that Jarque-Bera Statistic is 0.385603 with P-value of 0.824646, indicating normal distribution.

Akaike Information Criteria
The researchers therefore move to estimating the models with ARDL as shown in table below.

4.6: Model Estimation and Results
Having satisfied with all previous tests, the researchers confidently proceeded to estimating the relationship between performance of banks (ROA) and fiscal policy (CEX, REX, NOR and DEBT) in Nigeria with ARDL framework.
In the table 6 shows ROA has p-value of 0.9866 indicating it is not autoregressive. That suggests that ROA in the past cannot be predicting future occurrences. It conspicuously observed that CEX, NOR and DEBT have positive and significant relationship with ROA, while REX and DEBT at lag 1 negatively and significantly impacted ROA. The adjusted R-square is 0.415043 indicating that the estimated ARDL (1, 0, 0, 1, 1) model is moderately fitted, with the explanatory variable jointly accounting for 41.5% of total variation of ROA. The probability of F-Statistic is 0.011751, suggesting that the estimated model is highly significant. Durbin-Watson Statistics (Dw) is 2.079141 showing no need to worry about serial correlation. The researchers can boldly say that the model did a good job to describe the relationship between fiscal policy and bank performance.  Table 7 below shows ARDL Bound cointegration Test examining if there is long run relationship in the model. From the bound test, it can be seen that the F-Statistics is 5.648243 and is greater than all the critical values at 1(0) and 1(1) bounds. This reject the null hypothesis of no cointegration, meaning there is long run relationship between Capital Expediture (CEX), Recurrent Expenditure (REX), Non-Oil Revenue (NOR), Domestic Debt (DEBT) and Return on Assets (ROA) which is proxy of bank performance.  Vol.11, No.8, 2020

4.9: Correction Short Run Error Test
As revealed in the result in Table 9 below, error correction equation, CointEq(-1) has expected negative sign suggesting that it is statistically significant. It can also be seen that 99.6% of errors from the equilibrium can be corrected in the next period, and speed of adjustment is 99.6%.

5: Concluding Remarks and Recommendations
This study went into much neglected area of research, relationship between fiscal policy instruments and performance of banks in Nigeria. Resounding empirical findings were made as follows; Bank performance is autoregressive. That suggests that performance of banks in the past cannot be predicting future bank performance. In fact, it is a good warning to banks not to leave on past glory and to always strive to retain the trust and confidence reposed on them by their various stakeholders. For instance prior to and after deregulation phase in the banking business in Nigeria (1986Nigeria ( -1992, Firstbank, Union bank, United Bank of Africa and Afribank were referred to as the big four in Nigeria's coomercial bank categorization (Ejem, Ogbulu, Ogbonna, Oriko and Jombo, 2020).  (2001) who recorded that the classical economists believe that debt issued by the public has no effect on the private sector savings. To them, a deficit financed by increasing the supply of securities, ceteris paribus reduces its price and raises real interest rates and this crowds out private investment. In sum, excessive deficit can lead to poor economic performance. It was also found that fiscal policy variables (Capital Expediture, Recurrent Expenditure, Non-Oil Revenue and Domestic Debt significantly impact bank performance both in the short run and long run confirming Njoku (2009) that though the ultimate aim of fiscal policy is the long run stabilization of the economy, yet it can only be achieved by moderating short run economic fluctuations.
Since fiscal policy variables are found to exert significant impact banks' performance in Nigeria, the researchers suggests to the regulatory and supervisory bodies emphasize more on fiscal policy to regulate banking sector in Nigeria. Proper mix of monetary and fiscal policies should be properly adhered to. In addition, Federal government of Nigeria as a matter of urgency reconsiders the operation of Treasury Single Account (TSA). It is the view of the researchers that the TSA be operated through deposit money banks (DMBs) by domesticating various Ministries, Departments and Agencies (MDAs) account with the DMBs. It should be noted that government is the highest spender in the economy. In sum fiscal policy should employed to curb the menace of non-performing loans in Nigeria since its efficacy is felt both short run and long run as discovered in this study

Suggestion for Further Study and Limitation of Study
As earlier said in previous study by the same authors, the subject should be extended to other financial institutions and across the frontier of Nigeria. This will help to validate possible inferences, theories and policy making. The study is limited to deposit money banks in Nigeria. The researchers had wished it was extended to both banking and non-banking financial institutions in Nigeria and other African countries but was hindered by unavailability of data to the researchers.