Demand for, and Supply of Credit in Nigerian Banking Sector

Abstract

The study investigated the determinant of the volume of demand and supply of credit in the banking industry in Nigeria 1986 and 2007.     The study utilized secondary data. Annual time series data covering the period 1986 to 2007 on bank credit supply, lending rate, saving deposit ratio, nominal exchange rate, liquidity ratio, numbers of banks and loan-to-deposit ratio. The result showed that LDR and SDR were the primary drivers behind changes in the supply and demand for credit in the banking sector as they exhibited some degree of sensitivity to changes that are statistically significant (t = 2.56, p < 0.05) and (t = -2.70, p < 0.05) respectively. The conclusions drawn from the finding is that the neo-liberal economic policy prescriptions such as financial sector reforms, most often, failed to work through the postulated channels for developing countries like Nigeria. Thus, the policy package should only be adopted with modifications within the context of existing and prevailing social, macroeconomic and political situations in the country.  Therefore, within the range of factors that can lead to credit rationing in Nigeria, asymmetric or imperfect information is expected to become less relevant.

Key words: Credit, demand and supply, banking, regulation