Investigating the Factors Influencing Commercial Bank Lending in Nigeria: A Consolidation and Interaction Effect

Abstract

sudden liquidation of banks, the Nigerian deposit money banks were restructured. The restructuring commenced 2005, when Governor Soludo introduced the need for recapitalization into the sector through consolidation. (BIS, 2001) viewed consolidation as the increase in the size and improvement in the rendering of financial services occasioned by decrease in Abstract: This study provides empirical evidence on what determines bank lending in Nigeria by considering the pre and post consolidation effect and interaction effect using annual data from 1990-2019. This study employs multiple regression analysis. The regression model examines the effect of total savings (TOS), non- performing loan rate (NPLR) and number of bank branches (NBB) on credit to private sector (CPS). The study also investigates the interaction effect of total savings and Number of bank branches in explaining the combined factors that influences Nigerian Commercial Banks’ lending. The regression results reveal that before and after structural break, none of the variables is significant to determine commercial bank lending in Nigeria. It also reveals that prior to consolidation only TOS and NPLR had positive effect on CPS while all the variables had negative effects on CPS after consolidation period. From the result of the interaction effect, it’s evident that the direct effect of total savings, Number of bank Branches and Non-performing loan on credit to private sectors is positive while only total savings and Nonperforming loan exact significant effects. The interaction effect of total savings and Number of bank branches shows a negative but significant relationship with credit to private sector. This study therefore concludes that there exists an interaction effect in the model and that none of the variables is significant in determining commercial bank lending in Nigeria before and after consolidation. However, the multiplicative effect of total savings and number of branches on commercial bank lending behavior is significant. Therefore, the study recommends that total savings, non-performing loans and Number of bank branches should be jointly managed and utilized to control bank lending behavior in Nigeria. affect bank independent and for bank that a statistically significant relationship between exchange interest rate, of deposits, in In into determining positive effect on bank further neglect the information on the nonperforming loans profile of financial institutions before saving their funds. This in turn, boosts the availability of funds in these banks and the capacity to give out more loans.The result also reveals that multiplicative or interactive effect of Total Savings and Number of bank branches in determining commercial bank lending is significant. The study investigates the determinants of commercial bank lending behaviour in Nigeria considering the nteraction effect. Prior consolidation, the findings showed that total savings and Nonperforming loan rate have positive effect on credit to private sectors while after consolidation, all the independent variables had ectors. Moreover, none of the variables is significant both in the pre and post consolidation era. On the interaction effect side, all the variables have a direct relationship with the dependent variable while only Total savings and Nonperforming proved significant. Furthermore, the interaction effect of total savings and This study therefore, concludes that there exists an interaction effect in the model and that none of the variables is commercial bank lending in Nigeria before and after consolidation. However, the multiplicative effect of total savings and number of branches on commercial bank lending behavior is significant. Therefore, the study performing loans and Number of bank branches should be jointly managed and utilized to control bank lending behavior in Nigeria.