Abstract

Purpose. Attention of macroeconomists and financial experts has focused on the determinants of bank credit, with more attention on the demand side analysis. However, few existing study on the supply side determinants of bank credit are reported with inconsistent results, though they emphasized the role of economic growth. By employing Autoregressive Distribution Lag estimation technique, this study specifically focuses on the short-run dynamic and long-run effects of bank credit supply determinants in Nigeria using the data that span 1970-2015. We found that exchange rate, money supply, net foreign liabilities and real GDP all have a positive long-run impact on bank credit to private sector in Nigeria, whereas the effect of the general price level is negative. In the short run, the effect of money supply, net foreign liabilities and reserve requirement on bank credit to the private sector is positive with only inflation exerting a negative influence. In conclusion, policymakers are required to implement policies that stabilize the financial system and boost per capita income in order to promote a sustained and stable growth of bank credit to private sector in Nigeria. Bankers also should, however, monitor the rate at which they create credit which has implication for the overall money supply.The study was set out to estimate both the short and long-run relationship as well as dynamic effect of supply side factors on bank credit to private sector in Nigeria between 1970 and 2015. Methodology. The study employed Linear Autoregressive Distributed Lag (ARDL) co-integration test as suggested by Pesaran, Shin and Smith, (2001). Findings. It was evidenced that exchange rate, money supply, net foreign liabilities and real GDP all have a positive long-run impact on bank credit to private sector in Nigeria, whereas the effect of the general price level is negative. In the short run, the effect of money supply, net foreign liabilities and reserve requirement on bank credit to the private sector is positive with only inflation exerting a negative influence. Limitations. This study is limited only by its focus on the supply size analysis. A new line of study is suggested that can possibly investigate both the demand and supply size analysis together in one paper. Originality. This is an original work and has neither been published in any other peer-reviewed journal nor is under consideration for publication by any other journal.

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