Deposit Money Bank Policy and Private Sector Funding: A Multi-Dimensional Study from Nigeria

Abstract

This study empirically examined the effect of deposit money banks policy on private sector funding in Nigeria. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1985-2018. Credit to private sector, credit to core private sector and credit to small and medium scale enterprises was used as dependent variables while liquidity ratio and loan to deposit ratio was used as independent variables. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The empirical findings revealed that deposit money banks policy explains 40.8 percent variation on credit to core private sector, 28.1 percent and 58.9 percent of the variation in credit to core private sector and credit to small and medium scale enterprises sector.  The study conclude that deposit money banks policy has no significant relationship with credit to private sector and credit to core private sector but has significant relation with credit to small and medium scale enterprises sector. From the findings, the study recommends compliance to deposit money banks policies; this will enhance effective financial intermediation and increase funding of the private sector. There is also need for the regulatory authorities to harmonize the various deposit money banks policies with the objective of enhancing private sector funding. There is need to decentralize the operation of the deposit money banks in the urban cities. Policies should be formulated to extend the operation of the deposit money banks to the rural communities, this will enable the institutions to mobilize much deposit and increase credit to the private sector.