Investigating the determinants of commercial banks credit by the Business Sector in Namibia: A Co-integration Analysis

Abstract

Economists have long recognised that several factors are usually at work, when it comes to the determinants of bank credits in modern economies. Indeed, this subject has recently been reawakened by various scholars in the context of both the developing and developed countries, and Namibia is not an exception to this discussion. This study aims at addressing two key questions. Firstly, the driving factors that push the business sector in Namibia to demand for credit facilities are identified and analysed. Secondly, the neoclassical theory that postulates that there is an inverse and significant relationship between the real interest rate and investment growth is tested for Namibia. The study relied upon co-integration and error correction procedures in carrying out the investigation. Additionally, annual time series data for the period running from 1993 to 2010 was used in the study. The key findings arising from this study are the following. Firstly, the demand for bank credit in Namibia responds more to factors other than real interest rate. Secondly, the neoclassical theory, which postulates that real interest rates have significant dampening impact on credit decisions, does not hold water in the case of Namibia. In light of these findings, specific recommendations are put forward. Finally, future direction regarding further research concerning the issue under investigation is highlighted.

Keywords: Co-integration procedures, Annual Time Series Data, Commercial Bank credit, Gross Domestic Product, Neoclassical Theory of Investment Behaviour