Banking Sector Reforms and Economic Growth in Nigeria

Abstract

Economic expansion is impossible to achieve without a robust and reliable banking system. Reforms have been implemented in the banking industry in Nigeria. Through an application of the Ordinary Least Square (OLS) method, this study analyses the effect of changes to Nigeria's banking industry on GDP expansion between 1981 and 2021. The results demonstrate that the banking sector changes in Nigeria contributed significantly to the country's economic development for the better. After the banking industry was consolidated, the liquidity ratio was found to have a positive and statistically significant effect on economic growth, whereas before the reforms it had no effect at all. In addition, prior to the consolidation of the banking system, the cash reserve ratio had a negative and statistically negligible effect on economic expansion. Cash reserve ratio's effect on GDP growth was found to be positive and non-statistically significant following the change. A positive and statistically significant effect of monetary policy rate on economic growth was also shown in the years prior to the implementation of banking sector reforms. The reform had a considerable negative effect on economic growth as a result of the monetary policy rate. In order to maintain the effectiveness and efficiency of banks and the broader banking system, frequent reforms to the banking industry are necessary. To improve liquidity, and thus economic growth, the cash reserve ratio should be lowered. Received: 5 September 2023 / Accepted: 23 October 2023 / Published: 5 November 2023