The Growth Impact of Deposit Money Banks on the Economy of Nigeria

Abstract

This study examines the crucial roles of deposit money banks (DMBs) in driving economic growth in Nigeria. The study uses various banking metrics and performance indicators such as Loan to Deposit Ratio (LTD), Credit to the Private Sector (CPS), Liquidity Ratio (LR), Cash Reserve Ratio (CRR), Inflation Rate (INF), Interest Rate (INT), and Monetary Policy Rate (MPR) and the growth rate of Gross domestic product (GGR). Time series data from the CBN statistical bulletin spanning the period of 2008 to 2022 were used and. the Ordinary Least Squares (OLS) regression model was employed to analyze the data gathered. The findings of the study revealed that LTD positively and significantly contributed to economic growth in Nigeria while CPS, INF and INT exhibit a negative impact on growth in Nigeria. However, MPR has positive but insignificant impact on growth. Furthermore, LR and CRR were found to constrain the lending capacity of banks, thereby hindering growth in Nigeria. The study thus recommends that monetary policy frameworks of the CBN be reviewed to reduce reserve requirement of DMBs and that more growth inducing credit risk assessment policies of the CBN be implemented. Based on the banking sector performance parameters used in the study, the study therefore concludes that the roles of DMBs in Nigeria have not had the expected positive impact on growth in the economy, although their impact are significant, since only two out of seven of the parameters used had positive impact on economic growth in Nigeria.