The Impact of Macro-Economic Indicators on Domestic Credit in Commercial Banks in Nigeria

Abstract

The study examines the impact of macroeconomic variables on domestic credit using Nigeria data over a period 1980-2012 in an attempt to contribute to the growth of banking sector. More specifically, the study seeks to determine whether INT, INF, MSP, EXR have a long run relationship on domestic credits in the banking sector in Nigeria. Hence this paper applied econometric modeling in the development of a prediction test for domestic credit performance using Co-integration, Pairwise Granger causality and impulse response analysis test. The findings of the study confirms that monetary policy in Nigeria recorded varying results thus INT rate does Granger-cause MSP and MSP also Granger-cause INT rate. This shows that a long-run relationship exists between INT rate and MSP. Hence, they are bi-directional causality. Also, MSP Granger-cause INF rate but INF rate does not Granger-cause MSP which signifies that short run relationship exists between MSP and INF rate. Thus, indicating uni-directional causal effect between MSP and INF rate. It is recommended among others that Government together with the CBN should develop and pursue prudent monetary policies that would aim at reducing and stabilizing the influence of the macroeconomic indicators in other to boast the growth of the banking sector in Nigeria