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Growth and development of commercial banks in nigeria

Whole and retail trade output as a component of real gross domestic product is the proxy for SMSE growth. The easier it is for them to access these loans from banks, the faster they grow and the better they perform. CSMSE is deposit money banks credit small and medium scale enterprises: This is the credit banks give to only small and medium scale enterprises. CPS is deposit money banks credit to the growth and development of commercial banks in nigeria sector: This is the credit banks extend to the private sector of the economy which are driven by small and medium scale enterprises.

The credit mostly is short term and medium term in few occasions as banks consider long term as unattractive. INTR is interest rate: This is the rate at which banks extend credit to economy or the cost of capital that varies monthly and depending on the monetary policy rate the Central Bank of Nigeria.

However, the reverse is the case when the Interest rate is low. REXR is real exchange rate: This is the exchange rate the Naira against the US dollar. Trade surplus rises the value of a local currency as a deficit trade balance of a foreign country. A stable and favourable increases export, which in turn enhances economic growth via production processes of small and medium scale enterprises.

INF is inflation rate: Inflation rate is variation and sudden increases in the prices of goods and services which drastically reduces the purchasing power of money. A high level of inflation occasioned my high money supply results in high cost productive materials for small and medium scale enterprises, which ultimately affects their growth.

Data Analysis and Discussion of Results 4. The standard deviation of the series are The standard deviation of Again, the variations in interest rate was greater than the level of inflation in the economy as revealed by the standard deviation of The date were all positively skewed towards normality as shown by the positive values of the skewness statistic.

The insignificant p-values for the models in Tables 2 and 3 show no autocorrelation and heteroskedasticity issues. Descriptive Properties Table 2. Ramsey Reset Specification Table 5. Tables 10 and 11 depict the result of the level form test at constant without trend and with trend while Tables 12 and 13 that of first difference at constant without trend and with trend.

The result in Tables 10 and 11 show that stationarity would not be achieved for all the variables thus, rechecking at first difference. The Phillip Perron PP test in Tables 12 and 13 reveal that all the variable are stationary at first difference. The result of the unit root test via ADF and PP depict that stationarity of all the variables were achieved at first difference, hence permitting for the testing of the long run relationship between the variables.

Constant without Trend Table 7. Constant with Trend Table 8. Constant without Trend Table 9. Constant with Trend Table PP Test Result at Level: Constant without Trend Table Constant with Trend 4. Long Run Relationship The long run relationship between the dependent and the independent variables were tested using the Johansen co-integration methodology and the results summarized in Table 14, 15 and The Johansen co-integration result in Table 14 reveals that small and medium scale enterprises growth and deposit money banks credit to small and medium scale enterprises are co-integrated in the long run.

However, the max-eigenvalue indicates no co-integrating equation s between the dependent and the independent variables. It can be deduce from this result that there is a long run relationship between small and medium scale enterprises growth and deposit money banks credit to private sector. This is insinuation that increasing credit to private sector by deposit money banks would spur the growth small and medium scale enterprises as would be evidenced in increased production. This implies that the prevailing level of interest rate would in the long run influence the growth of between small and medium scale enterprises.

Nigerian Banks As Catalyst to Economic Growth

Global utility coefficient of Adjusted R-squared, F-statistic and Durbin Watson statistic and relative statistics criteria coefficient of the constant and independent variables were employed in interpreting the output of the models. Nonetheless, the lagged values of the dependent variables, specifically for model 1 and 2 were applied check the reliability of the Durbin Watson in addition to the serial correlation test performed in Table 2.

Small and Medium Scale Enterprises Growth and Deposit Money Banks Credit The model relative statistics in Table 17 reveal that small and medium scale enterprises growth, inflation and deposit money banks credit to small and medium scale enterprises are negatively related while a positive and significant relationship was found between real exchange rate and small and medium scale enterprises growth. The coefficient of the constant The significant p-value of credit to small and medium scale enterprises is an indication that unit increase in deposit money banks credit to small and medium scale enterprises results in 5.

This negates the a priori expectation of a positive relationship. A percentage rise in real exchange rate entails a 5, A rise in the level of inflation would likely reduce small and medium scale enterprises growth by 1, The Adjusted R-squared value of 0.

The F-statistic of The Durbin Watson statistic of 1. Small and Medium Scale Enterprises Growth and Credit to Private Sector Table 18 shows that credit to private sector and real exchange rate have positive and significant relationship with small and medium scale growth and development of commercial banks in nigeria growth.

The relationship between inflation and small and medium scale enterprises growth is also positive but insignificant. The constant coefficient of the model provided that small and medium scale enterprises growth would be 2,million if deposit money banks credit to private sector, real exchange rate and inflation are held constant.

A percentage rise in credit to private sector would amount to 0.

Agricultural Funding and Challenges of Deposit Money Banks in Nigeria

Real exchange rate unit appreciation would increase small and medium scale enterprises growth by a factor of 10, From the Adjusted R-squared in Table 18, The Durbin Watson value of 0. Nonetheless, the serial correlation test in Table 2 shows that the variables in the model are not serially correlated. Small and Medium Scale Enterprises Growth and Interest Rate As expected, regression result in Table 19 reveals that interest rate and inflation rate have negative but insignificant relationship with small and medium scale enterprises growth as real exchange rate positively and significantly relates with small and medium scale enterprises growth.

From the coefficient constant, small and medium scale enterprises growth would amount to 34, A rise in interest rate and inflation would reduce small and medium scale enterprises growth by A percentage appreciation in real exchange rate enhances small and medium scale enterprises growth by 3, The Adjusted R-squared which shows the percentage variation in the dependent variable attributed to explanatory variable s infers in Table 19 that about That notwithstanding, serial correlation test in Table 2 for model 3 envisages that the variables were not serially correlated.

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Small and Medium Scale Enterprises Growth 4. Short Run Dynamics Having established the presence of a long run relationship between the dependent and independent variables, the short run dynamics was ascertained using the Vector Error Correction Model VECM and the results presented in Table 20, 21 and The VECM was conducted to ascertain if or not all the variations in dependent variable was owing to the co-integrating vectors trying to return to equilibrium and the error correction term that captures this variation.

On the long run relationship between small and medium scale enterprises growth and deposit money banks credit to small and medium scale enterprises, the error correction model coefficient as shown in Table 20 showed the expected negative sign expressing that there is a tendency by the model to correct and move towards the equilibrium path following disequilibrium in each period thus, significant error correction is taking place.

For long run linkage between small and medium scale enterprises growth and credit to private sector, Table 21 reveals that the error correction again possessed the expected negative sign envisaging that a significant error is taking place. Table 22 presents the VECM result on the on the co-integration relationship between small and medium scale enterprises growth and interest rate.

The error correction model again exhibited the expected negative sign, an indication that there are adjustments to stability in the short term. Pairwise Granger Causality Effect Assessment Test To assess the effect of deposit money banks credit surrogates on small and medium scale enterprises growth, the pairwise granger causality test was evoked and the results groomed in Table 23, 24 and From the clad result in Table 4.

Causality does not run from deposit money banks credit to small and medium scale enterprises to growth of small and medium scale enterprises. It can be inferred that deposit money banks credit to small and medium scale enterprises has no significant effect on the growth of small and medium scale enterprises in Nigeria. Causality runs from credit to private sector to small and medium scale enterprises growth and from growth of small and medium scale enterprises back to credit to private sector.

This result shows that credit to private sector has significant effect on small and medium scale enterprises growth and small and medium scale enterprises growth on the other hand, has significant effect on credit to private sector.

Inflation rate was found not significantly affect small and medium scale enterprises growth. Causality was evidenced to flow from growth and development of commercial banks in nigeria rate to small and medium scale enterprises growth. In essence, interest rate has significant effect on small and medium scale enterprises growth in Nigeria.

Banking in Nigeria

Discussion of Findings The result in Table 18 envisaged the expected positive relationship between credit to private sector and growth of small and medium scale enterprises.

This is also confirmed the granger causality effect test in Growth and development of commercial banks in nigeria 25 which disclosed the significant effect of credit to private sector on small and medium scale enterprises growth. The findings in Table 18 and Table 23 clad that an increase in deposit money credit to private sector leads to rise in the liquidity positions of SMEs which gives them more room for business expansion by investing in high income ventures, hence their growth with respect to size and contribution to GDP.

This supports the works of [13, 21] on the positive and significant effect of credit to private sector on SMEs growth in Nigeria. Following the significant negative relationship between SMSEs growth and interest rate in Table 19, granger causality test in Table 25 proved that interest rate negatively and significantly affect SMSEs growth in Nigeria.

This is expected because the higher the interest rate, the higher the cost of capital which decreases the level of investment capable of spurring and sustaining growth. With high interest rate as the case in Nigeria today, investors or entrepreneurs are discouraged to produce which reduces the monetary value of goods and services of SMSEs.

This is in tandem with the study of [12, 5, 14, 40, 43, 22] and legendary work of Morris This is against a priori expectation and theoretical consideration. This may be that the increasing credit to SMSEs by banks are under-utilized coupled with harsh macroeconomic and operating environment preluding efficacy of the credit extended to SMSEs.

Nevertheless, the finding agrees with [33, 15] but would not confirm the previous studies off [17, 5, 30] on the positive influenced of banking sector credit to SMSEs.

As shown in Tables 23, 24 and 25, real exchange rate exerted a significant effect on SMSEs growth within the period studied.

  • So many scholars see this singular action as a result of confidence crises on the banking system by the Nigerian people;
  • Financing new venture exporters.

This is an inference that the appreciation of the Naira against US dollar and other foreign currency would improve the value of the Naira, decrease imports as it will exorbitant and encourages exports.

This is in unison with [17, 5]. This is on the premises that higher rate of inflation erodes the purchasing power of money thereby reducing value. The reduction in value of money ultimately leads to reduction in economic production units, threatening the progressive projection of sustained increase in gross domestic products.