Commercial Banks Credit and The Performance of Real Sector in Nigeria: 1990-2017

American International Journal of Supply Chain Management
Vol. 1, No. 1; 2020

Published by American Center of Science and Education, USA
Commercial Banks Credit and the Performance of Real Sector in

Nigeria: 1990-2017
Idih Ogwu Emmanual PhD

Department of Banking and Finance
Faculty of Management Sciences
Kogi State University
P.M.B 1008, Anyigba, Kogi State, Nigeria
E-mail: emmite1010@gmail.com
Oluwagbemigun Olupeeka
Faculty of Social and Management Sciences
Adekunle Ajasin University
P.M.B 001, Akungba Akoko, Ondo State, Nigeria
E-mail: oluwagbemigunolu@gmail.com
Adewole Joseph Adeyinka PhD

Faculty of Social and Management Sciences
Adekunle Ajasin University
P.M.B 001, Akungba Akoko, Ondo State, Nigeria
E-mail: princeadeyinkaadewolej@gmail.com
Abstract
The study examined the arguments and counterarguments within the scientific discussion o n commercial banks
credit and the performance of real sector in Nigeria . The main objective of the study is to examine the effect of
commercial banks credit on the performance of the real sector in Nigeria.Data was sourced from Central Bank of
Nigeria Statistical Bulletin. A systematization literary approach for data analysis was Regression Analysis. Findings
revealed that bank credit and bank lending rate does not have significant impact on real sector performance in
Nigeria. It was showed that there was a positive and significant relationship between agricultural credit guarantee
scheme fund and agricultural production in Nigeria. The study therefore recommends that banks should be directed
to channel their credits towards the real sector to facilitate overall economic growth and development in Nigeria. It
was recommended that there is the need policies that will favor the revamp of the agricultural sector in Nigeria
should be given pride of place. Also, monetary authority through the Central Bank of Nigeria should create adequate
policies and strategies towards deepening of the financial sector and reducing the cost of credit/loans so as to
enhance productivity and consequently enhance the growth of the key sectors of economy such as manufacturing
sector.
Keywords: Commercial Banks, Credit, Real Sector, Lending Rate, Gross Domestic Product.
1. Introduction
The role commercial banks play in the economic development of a nation cannot be played down, considering the
fact that funds are often required to reach any meaningful economic height in every nation. According to
Korkmaz, (2015) in the history of economics, banking emerged with the development of exchanger stores in the
15th and 16th centuries. Banks demonstrated development within the historical process and became institutions
that were of assistance to economic and commercial activities and even more regulatory institutions for them in
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the 19th century. In an endogenous growth model, Nnanna, (2004) observed that financial development can affect
growth in three ways, which are: raising the efficiency of financial intermediation, increasing the social marginal
productivity of capital and influencing the private savings rate. This means that a financial institution can affect
economic growth by efficiently carrying out its functions, among which is the extension of credit.
Okwo, Mbajiaku and Ugwunta, (2012) opined that the role of bank credit in economic development
especially the real sector development has been recognized because credits are obtained by the various economic
agents so as to enable them to meet investment operating expenses on real sector components. For instance,
business firms obtain credit to buy machinery and equipment, farmers obtain credit to purchase machines such as
tractors, other farm inputs like seeds, fertilizers and also erect various kinds of farm buildings. Government
bodies obtain credits to meet various kinds of recurrent and capital expenditures. The basic purpose of
commercial banks is financial intermediation between savers and borrowers. Banks are financial intermediaries
that mobilize funds from surplus economic units and allocate those funds to deficit economic units. Bank
mobilizes fund mainly through the collection of deposits and allocation of those funds by providing credit.
According to Korkmaz, (2015), providing credit is one of the primary functions of a bank. Bank credit is the
principal sources of loanable fund for millions of households and the government. Therefore, it is very important
to an economy.
The real sector comprising agricultural, commercial, and industrial activities of a nation is often financed
by bank credit. Without adequate financing, there can be no growth or maintenance of stable output. Thus, the
bank credit influences total macroeconomic environment by affecting money supply, investment, total output, and
employment. In order to remain stable and profitable, companies need to mix both debt and equity strategically
for the purpose of achieving an optimum capital structure. Banks promote economic growth through the process of
financial intermediation by efficiently allocating funds mobilized from the surplus economic units to deficit units.
This function, therefore, suggests that financial intermediation could serve as a catalyst for economic growth and
development (Korkmaz, 2015, Hossain, Islam, Mahmud, & Islam, 2017).
Nigerian Banks and business organizations in the period after 2005 saw bank credit as the major source of
financial resources. The directive that compelled all commercial banks to raise their capital base from #2 billion to
25 billion nairas on or before 31st December 2005 sent some of the banks on the move to achieve their financial
intermediation roles (Somoye, 2008). Despite bank consolidation in the country, some of the Nigerian banks are still
faced with challenges of ineffective and inefficient bank credit. These challenges include: poor risk management,
poor corporate governance practices, over-reliance on public sector funds, weak infrastructure, insufficient
regulation and reporting, weak credit assessment skills, lack of professionalism and skills gap, which have resulted
to low liquidity in the sector thereby causing more banks distressed that is characterized by job losses which in turn
causes untold hardship in the country.
The research questions raised to guide the study are (I) What significant impact has commercial bank credit
has on agricultural sector performance in Nigeria? (ii) Do commercial banks credit has any significant impact on
manufacturing sector performance in Nigeria? (iii) Do commercial banks credit has any significant impact on
mining sector performance in Nigeria? (iv) To what extent has commercial banks credit impacted on construction
sector performance in Nigeria?.
The main objective of the study is to examine the impact of commercial banks credit on the performance of
the real sector in Nigeria. The specific objectives are to examine the impact of commercial banks credit on the
agricultural sector performance in Nigeria, find out the impact of commercial banks credit on the manufacturing
sector performance in Nigeria, evaluate the impact of commercial banks credit on the mining sector performance in
Nigeria and to find out the impact of commercial banks credit on the construction sector performance in Nigeria.
The hypotheses of this study were formulated in a null form (i) There is no significant impact of commercial banks
credit on agricultural sector performance in Nigeria (ii) There is no significant impact of commercial banks credit on
manufacturing sector performance in Nigeria (iii) There is no significant impact of commercial banks credit on
mining sector performance in Nigeria (iv) There is no significant impact of commercial banks credit on construction
sector performance in Nigeria.
This study is highly unique since it will enlighten the general public on the impact of commercial bank
credit on real sector performance in Nigeria. It establishes the fact that financial intermediation is a veritable means
of fostering bank growth. The study shows how banks play an important role in directing financial resources to their
most productive use. It shows how the development of the money market (which banks are a participant) smoothen
the progress of financial intermediation and boosts lending to the economy and improves the country's economic and
social welfare. The relevance of this study cannot be overemphasized considering the fact that there is an urgent
need and call for the diversification of the nation's economy.
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This study examined the impact of commercial banks credit on the performance of the real sector in
Nigerians. The study is restricted to the period of 18years from 1999 to 2017, using relevant indicators such as
manufacturing sector output, commercial banks’ credit to the manufacturing sector. The data for the various
indicators for the study was generated from Central Bank of Nigeria (CBN) statistical bulletin (2017).
2. Literature Review
2.1 Meaning of Bank credit
Chester (1920) defines Bank credit as credit extended by banks to borrowers. He stressed further that, Bankers
frequently use the term in the plural, meaning advances made to their borrowing customers. Whether the
borrower withdraws the amount of the proceeds of his loan in cash at once or leaves it on deposit with the lending
bank, the loan in either case constitutes credit extended. Just as a merchant extends credit to he who pays for his
purchase at a later time, so the banker extends credit to the business man who borrows money. Whether the
money is taken from the bank at the time the loan is made, the next day, or ten days later, makes no essential
difference; bank credit may take even the form of an overdraft.
Credit has been described as a device for facilitating transfer of purchasing power from one individual or
organization to another. As indicated by Oyatoya, (1983) credit provides the basis for increased production
efficiency through specialization of functions thus bringing together in a more productive union the skilled labor
force with small financial resources and those who have substantial resources but lack entrepreneurial ability.
Likewise, Abayomi and Oyerinola, (2018) put forward that credit can be defined as the transfer of money or a
resource from the lender to the borrower.
In general, total domestic bank credit can be sub divided into two: credit to the private sector and credit
to the public sector. It has been empirically proved that credit to the public sector is weak in generating growth
within the economy because they are prone to waste and politically motivated programmes which may not deliver
the best result to the populace while private credit had been observed to be the dynamic instrument of accelerated
growth (Beck et al 2000; Levine et al 2000; Odedokun 1998; King & Levine, 1993; Islam, 2013).
Private sector credit is decomposed into two categories: short-term credit that has contractual maturity of
one year or less and long-term credit that has contractual maturity longer than one year. Some countries, most
notably many of the transition economies, provide more detailed data on credit maturity up to one year, one to
five years and longer than 5 years. Some countries report maturity longer than 7 or even 15 years. While it would
be interesting to investigate credit with different maturity structures (e.g. medium-term, long-term, and “very
long-term” credit), the only categorization that is consistent across all countries is the one that divides credit into
short-term credit with maturity of one year or less and other credits.
The availability of bank credit in general and long-term credit in particular is important determinants of
economic growth and development in emerging markets. In a general banking literature, a long-term loan is
commonly defined as a loan with an original maturity of several years. By international standards, most business
loans in this category have three to ten years maturity. In this study, long-term business loans are defined as loans
with at least three years to maturity. Recent cross-country evidence shows that banks in the emerging economies
are reluctant to extend long-term credit to private businesses. Some factors influencing this reluctance are the
unstable local government economic policies, the idiosyncratic country legal risk and the riskiness and opacity of
business borrowers in these countries.
Although there is a broad body of literature that addresses these issues, it either focuses on the demand
side of debt (firms access to credit) or on the cross-country variation of bank lending behavior, (Lucy &
Alexandra, 2007; Islam, Alam, & Al-Amin, 2015).
2.2 Theory of Financial Intermediation

The theory of financial intermediation was first formalized and popularized in the works of Goldsmith (1969), Shaw
(1973) and Mckinnon (1973), who see financial markets (both money and capital markets) playing a pivotal role in
economic development, attributing the differences in economic growth across countries to the quantity and quality
of services provided by financial institutions. Supporting this view is the result of a research by Nwaogwugwu,
(2008) and Dabwor, (2009) on the Nigerian stock market development and economic growth, the causal linkage.
However, this contrasts with Robinson (1952), who argued that “financial markets are essentially hand maidens to
domestic industry, and respond passively to other factors that produce cross–country differences in growth.
Moreover there are general tendency for supply of finance to move along with the demand for it. The same impulse
within an economy, which set enterprises on foot, makes owners of wealth, venturesome and when a strong impulse
to invest is fettered by lack of finance, devices are invented to release it. The Robinson school of thought therefore
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believes that economic growth will bring about the expansion of the financial sector. Goldsmith (1969) attributed the
direct correlation between the level of real per capita GNP and financial development to the positive effect that
financial development has on encouraging more efficient use of the capital stock. In addition, the process of growth
has feedback effects on financial markets by creating incentives for further financial development.
Mckinnon, (1973) in his study argued that there is a complimentary relationship between physical capital
and money that is reflected in money demand. This complimentarily relationship according to Mckinnon, (1973)
links the demand for money directly with the process of physical capital accumulation mainly because the
conditions of money supply have a first order impact on decision to save and invest. Debt intermediary hypothesis
was proposed by Shaw, (1973), whereby expanded financial intermediation between the savers and investors
resulting from financial liberalisation (higher real interest rates) and development increase the incentive to save and
invest, stimulates investments due to an increase supply of credit, and raises the average efficiency of investment.
This view stresses the importance of free entry into and competition within the financial markets as prerequisites for
successful financial intermediation. They labeled the main rudiments of financial suppression as:
 High reserve requirements on deposits,
 Legal ceilings on bank lending and deposit rate,
 Directed credit,
 Restriction on foreign currency capital transactions,
 Restriction on entry into banking activities.
However, the Mckinnon-Shaw framework informed the design of financial sectors reforms in many developing
countries, country experiences later showed that while the framework explains some of the quantitative changes in
savings and investment at the aggregate level, it polishes over the micro-level interactions in the financial markets
and among financial institutions which affects the supply of savings and demand for credit by economic agents and
the subsequent effect on economic growth. Mckinnon’s Proposition is based on the complementarily hypothesis,
which in contrast to the Neo- classical monetary growth theory, argued that there is a complementarily between
money and physical capital, which is reproduced in money demand.
2.3 The Structuralism Approach

The structuralist school of thought emphasizes structural difficulties such as market inefficiencies as the main reason
for economic retrogression of emerging countries. They criticized the market clearing assumptions implicit in the
financial liberalization school, especially the assumption that higher interest rates attract more savings into the
formal financial sector (Van Wijinbergen, 1982). Besides, Van Wijinbergen argued that it could just fine be the case
that informal markets will provide more financial intermediation. Since institutions in this sector are not subject to
reserve requirements and other regulations that affect financial institution in the formal sector. He also argued that in
the event that informal sector agents substitute their deposits for that in the formal sector due to high interest rates,
the unexpected consequence will be adverse effect on financial intermediation and economic growth (Dabwor,
2010).
Banking Structure and Intermediation Efficiency

The link between banking sector restructuring and measures of its performance is firmly rooted in the industrial
organization literature on bank structure and efficiency. As it has been done in most bank profitability studies, the
relationship between bank balance sheet strength and its lending performance can be analyzed within the structure-
conduct-performance (SCP) and the efficient –structure (ES) hypotheses. The analysis of the relationship between
the changing structure of banking systems, their degree of competition and their efficiency in fulfilling their role of
intermediation has become a relevant empirical issue. Different lines of reasoning describe the relationship between
market structure and efficiency in a banking system.
One of the most common arguments known as the structure-conduct-performance hypothesis asserts that
greater concentration of payment and settlement flows among fewer parties can result in less competition, with
detrimental effects to borrowers, who might be charged with higher interest rates. This in turn, could lead to
inefficient credit allocation. In other words, the structure of a market influences how firms in that market will act,
affecting their overall performance.
The other common argument is known as the efficiency hypothesis and this postulates the opposite
causality relationship in the sense that firms with superior management or production technologies compete for
larger market shares, and this process eventually results in high levels of concentration (Demsetz, 1973).
Consequently, if regulators base their decisions on the structure-conduct-performance hypothesis and introduce
measures aimed at discouraging concentration and market to promote competition and more intermediation, the final
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results might be completely different, i.e, they might end up reducing the incentives of banks to compete and operate
efficiently.
The empirical evidence for developed banking systems fails to support both hypothesis (Gilbert, 1984 and
Berger, 1995). This in turn, suggests that new models are required to correctly understand the complexity of the
banking industry. In fact, there exist other lines of reasoning that associate the structure of the market with
efficiency and competition.
Allen & Gale (2000) show that a concentrated market can be more efficient than a competitive one. The
“static” efficiency gains that arise under competition (such as a reduction in operational costs) might be offset by
excessive risks that bank take in order to gain larger market shares (such risks might in turn lead to financial
instability). The authors argue that instead, in a concentrated market, banks might be able to invest in new
technologies and gains would come from innovation (Schumpeterian view of “dynamic” efficiency).
Hauswald & Marquez (2000) suggest that concentration may reduce asymmetric information and enhance
the role of banks as information producers in their lending activity, resulting in better screening (borrower-specific
information becomes less disperse that under competition), less risk of default, a reduction of loan rates, and a more
efficient allocation of credit.
2.4 Endogenous Growth Theory

The Endogenous growth theory holds that economic growth is primarily the result of endogenous and not external
forces. This theory holds that investment in human capital, innovation, and knowledge are significant contributors to
economic growth. The endogenous growth theory primarily holds that the long run growth rate of an economy
depends on policy measures. For instance, subsidies for research and development or education increase the growth
rate in some endogenous growth models by increasing the incentive for innovation (Wikipedia, 2016).
The endogenous growth model can be used to explain the path in advancing the real sector to promote
growth on a long run basis. The growth model is central to investment and services like risk diversification, savings
mobilization and liquidity generation offered by financial intermediaries. According to Ghali (1999) endogenous
growth model proposes that through services of risk diversification, savings mobilization and liquidity generation,
there is an implied positive relationship between financial intermediation and economic growth. Impact of reforms
in the model can occur as the result of government intervention which can either worsen off or improve the financial
institutions (Schumpeter, 1911; Ghali 1999).
2.5 The Loanable Funds Theory of Interest Rate

According to this theory, the rate of interest is the price of credit which is determined by the demand and supply of
loanable funds. The demand for loanable funds has primarily three sources; government, businessmen and
consumers who need them for purposes of investment, hoarding and consumption. The government borrows money
for constructing public works or for war preparations. The businessmen borrow for the purchase of capital goods
and good starting investment projects. Such borrowings are interested elastic and depend mostly on the expected rate
of profit as compared with the rate of interest(John & Terhemba, 2016).
The demand for loanable funds on the part of consumers is for the purchase of durable consumer goods.
Individual borrowings are also interested elastic. The tendency to borrow is more at a lower rate of interest than at a
higher rate. Therefore, the demand curve for investment funds according to this theory slopes downward showing
that less funds are borrowed at a higher rate and more at a lower rate of interest. The theory of loanable funds
provides a link between commercial bank credits and manufacturing sector output in that, it buttresses the fact that
borrowing for investment in the manufacturing sector is interest rate elastic since it is determined by the existing rate
of interest.
3. Methodology
The research design adopted in this study is ex-post facto. Time Series Annual data on commercial banks to real
industrial sector were extracted from statistical bulletin of central bank of Nigeria for the period 1990 – 2017. This
method is considered appropriate because it will be used to establish whether, and to what degree of impact that
exist between two or more quantifiable variables (Oneme, 2010). Research design provides the framework for
finding solution to any problem under study. In this line, OSUALA (2010) is of the opinion that the choice of
research design is determined by the focused objectives of the study. In addition, the result from the test of
hypotheses can be used to generalize the findings of the study to the entire population.
The population target for this study focuses on financial institutions in Nigeria, Specifically commercial
banks. According to Cooper & Schindler, (2001), population is the total collection of elements about which one
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wants to make some inferences. Hence, the target population of this study is 25 post-consolidated banks in Nigeria
through CBN Statistical Bulletin. The time series data for the period of eighteen years (1999–2017) were used as the
sample size of this study. The variables Deposit Money Banks credit to agricultural sector, manufacturing sector
mining sector and construction sector. This period were randomly chosen for the study because of the availability of
data and the need to examine the impact of deposit money banks credit on performance of real sector in Nigeria.
Based on the nature of the study, data collection was based on secondary data. The study sourced data from
Statistical Bulletin of the Central Bank of Nigeria (CBN), Federal Office of Statistics (FOS) and Annual Abstract of
Statistic of the National Bureau of Statistic (NBS). The source of data for the study is secondary source because it
requires the time series data of the Bank credit, the GDP, agricultural sector and manufacturing subsector for the
period between 1990 and 2017. The study analyzed data over the period 1990 – 2017. Ordinary Least Square (OLS)
regression technique were used to estimate the values of the parameters bo, b1 and b2. Besides, we used the student’s
t-values obtained to determine the statistical significance of the parameter estimates and the test of goodness of fit
for the model using the R2 technique. This enables the study know the percentage of variations between the
dependent variable and the explanatory variables. Then, the f-statistic test to determine the overall significance of
the multiple regression models and the Durbin –Watson test for the presence or absence of auto-correlation.
Given the propositions stated that commercial banks plays a crucial role in determining availability of
lending, which serves as a source of credit for the real sector of the economy which includes agricultural and
manufacturing subsectors. In this study therefore, we are examining the impact of bank credit on real sector
performance i.e. agriculture and manufacturing subsectors. As such, in specifying our model, we have two separate
models:
For the first model; our dependent variable shall be Agricultural subsector contribution to the Nigerian GDP, while
our explanatory variables shall be the annual time series data of Commercial Bank Credit and the Bank Lending
rate. Therefore, the regression model can be specified as thus;
AGDP = b0 + b1X1 + b2X2 + U

Where
AGDP = Agricultural subsector contribution to GDP
X1 = Commercial Bank Credit (CBC)
X2 = Bank Lending rate (BLR)
U = the stochastic error term
bo, b1 and b2 are parameters
For the second model; our dependent variable shall be Manufacturing subsector contribution to the Nigerian GDP,
while our explanatory variables shall be the annual time series data of Commercial Bank credit and Gross Domestic
Product. Therefore, the regression model can be specified as thus;
MnfGDP = b0 + b1X1 + b2X2 + U

Where
MnfGDP = Manufacturing subsector contribution to GDP
X2 = Gross Domestic Product (GDP)
For the third model; our dependent variable shall be Mining subsector contribution to the Nigerian GDP, while our
explanatory variables shall be the annual time series data of Commercial Bank credit. Therefore, the regression
model can be specified as thus;
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Min GDP = Mining subsector contribution to GDP

For the fourth model; our dependent variable shall be construction sector contribution to the Nigerian GDP, while
our explanatory variables shall be the annual time series data of Commercial Bank credit. Therefore, our regressions
model can be specified as thus;
CGDP = b0 + b1X1 + b2X2 + U

Where
CGDP = Construction sector contribution to GDP
4. Results
This section deals with the data presentation, results and discussion, test of hypotheses, discussion of findings and
summary of findings.
4.1 Data Presentation

The table below presents the figures of Nigeria real sector gross domestic product and deposit money bank credit to
manufacturing Nigeria for the period of 19 years (1999-2017)
Tables 4.1.1& 4.1.2: Showing data of variables used for analysis
YEARS GDP BANK CREDIT AGRIC TO GDP MANUF. TO GDP

(BILLIONS (BILLIONS #) (BILLION #) (BILLION #)
#)
1990 11364.59 1213.3 1234.24 128.52
1991 11567.98 1324.5 1324.88 141.51
1992 12342.87 1435.8 1435.90 157.89
1993 12546.70 1324.8 1546.89 167.98
1994 12980.76 1453.6 1657.98 189.90
1995 13564.90 1574.9 1786.95 199.50
1996 14352.88 1698.0 1876.98 213.87
1997 15649.55 1789.4 2095.45 257.50
1998 15789.23 1876.1 2299.56 265.90
1999 15897.43 1895.2 2345.55 274.88
2000 16213.90 2123.8 2897.90 298.77
2001 16758.98 2135.5 3046.99 308.91
2002 16987.22 2215.7 3567.84 316.72
2003 17444.10 2218.3 3879.80 321.78
2004 17685.55 2276.9 4178.90 335.89
2005 18986.66 2348.7 4389.56 345.65
2006 18564.59 2524.3 5940.24 478.52
2007 20657.32 4813.5 6757.87 520.88
2008 24296.33 7799.4 7981.40 585.87
2009 24794.24 8912.1 9186.31 612.31
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2010 54612.26 7706.4 10310.66 643.07

2011 62980.40 7312.7 11593.43 694.81
2012 71713.94 7800.9 13413.84 761.47
2013 80092.56 9112.2 14709.10 823.86
2014 89092.56 11475.18 15380.39 6684.22
2015 98890.23 13243.80 16451.62 7612.81
2016 108976.32 15463.90 17876.43 8769.92
2017 128976.80 16789.08 19876.56 9675.45
Source: CBN Statistical Bulletin (December, 2017) and National Bureau of Statistics 2018.
Table 4.1.2 Showing Data for Analysis
YEARS MINING (BILLIONS BUILDING &

#) CONSTRUCTION
(BILLIONS #)
1990 134.90 213.3
1991 157.80 324.5
1992 234.70 435.8
1993 244.70 324.8
1994 280.76 453.6
1995 364.90 574.9
1996 452.88 698.0
1997 549.55 789.4
1998 589.23 876.1
1999 597.43 895.2
2000 613.90 1123.8
2001 658.98 1135.5
2002 687.22 2115.7
2003 744.10 2118.3
2004 765.55 2176.9
2005 898.66 3148.7
2006 8564.59 5124.3
2007 2067.32 8213.5
2008 24296.33 8699.4
2009 24794.24 9212.1
2010 54612.26 11470.4
2011 62980.40 17612.7
2012 71713.94 17890.9
2013 80092.56 19129.2
2014 89092.56 2475.718
2015 98890.23 32438.80
2016 108976.32 54638.90
2017 128976.80 67899.08
Source: CBN Statistical Bulletin (December, 2017) and National Bureau of Statistics 2018.
Table 4.1.1 and table 4.1.2 above shows the variables that were used for analysis in this study. It shows the annual
time series data for the gross domestic product (GDP), bank credit, lending rate, agricultural contribution to GDP
and the manufacturing subsector contribution to the GDP between 1990 and 2017. The data contained in the table
were analyzed to obtain the results used for discussion and recommendation in the study.
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4.2 Data Analysis

Analyzed data results are presented in the tables below:
Table 4.2.1 Regression Result for Hypothesis One
Dep. Var: Coefficient Std Error t-stat. Prob. Remark

AGDP
CBC 0.16 0.25 0.64 0.54 NS
BLR 1069.03 253.09 4.22 0.004 SIG.
C -14056.81 4092.75 -3.44 0.01 SIG
R2 = 0.93, DW = 1.72, F-STAT = 44.30, N = 28
Where NS = Not Significant, SIG. = Significant
Source: Researcher’s E-views Computation Version 8
AGDP = - 14056.81 + 0.16 CBC + 1069.03 BLR
Table 4.2 shows the result of the regression analysis of the impact of the Bank credit on the agricultural
subsector contribution to the gross domestic product of Nigeria from 1990 to 2017. The result reveals that the model
for our study is well fitted (F-statistic= 5.27). The coefficient of determination (R-square), which measures the
goodness of fit of the model, indicates that 60% of the variations observed in the dependent variable were explained
by the independent variables.
Table 4.2.2 Regression Result for Hypothesis Two

MNFGDP
CBC 0.63 0.43 1.48 0.18 NS
BLR 83.75 436.65 0.19 0.85 NS
C -5051.85 7061.29 -0.72 0.49 NS
R2 = 0.60, DW = 0.97, F-STAT = 5.27, N = 28
Where NS = Not Significant
Source: Researcher’s E-views Computation
MNFGDP = - 5051.85 + 0.63 CBC + 83.75 BLR
Table 4.3 shows the result of the regression analysis of the impact of the Bank credit on the contribution of
manufacturing subsector to the gross domestic product of Nigeria from 1990 to 2017. The result reveals that the
model for our study is well fitted (F-statistic= 44.30). The coefficient of determination (R-square), which measures
the goodness of fit of the model, indicates that 93% of the variations observed in the dependent variable were
explained by the independent variables.
Table 4.2.3 Regression Result for Hypothesis Three

MNGDP
CBC 0.77 0.10 7.70 0.00 S
BLR 44.51 36.65 1.22 0.15 NS
C -2032.52 1161.29 -1.75 1.42 NS
R2 = 0.72, DW = 1.97, F-STAT = 56.54, N = 28
MNGDP = - 2032.52 + 0.77 CBC + 44.51 BLR

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manufacturing subsector to the gross domestic product of Nigeria from 1990 to 2017. The result reveals that the
model for our study is well fitted (F-statistic= 56.54). The coefficient of determination (R-square), which measures
the goodness of fit of the model, indicates that 72% of the variations observed in the dependent variable were
explained by the independent variables.
Table 4.2.4 Regression Result for Hypothesis four
Dep. Var: BCGDP Coefficient Std Error t-stat. Prob. Remark

CBC 0.88 0.35 2.51 0.03 S
BLR 53.75 46.65 1.15 0.85 NS
C -4091.57 6011.50 -0.68 0.79 NS
R2 = 0.85, DW = 1.75, F-STAT = 9.76, N = 28
BCGDP = - 4091.57 + 0.88 CBC + 53.75 BLR
building and construction subsector to the gross domestic product of Nigeria from 1990 to 2017. The result reveals
that the model for our study is well fitted (F-statistic= 9.76). The coefficient of determination (R-square), which
measures the goodness of fit of the model, indicates that 85% of the variations observed in the dependent variable
were explained by the independent variables.
Test of Hypothesis One
Hypothesis Ho1: There is no significant relationship between commercial banks credit and agricultural sector
performance in Nigeria
The result shows that bank credit has a positive but non-significant impact on the Agriculture contribution to GDP in
Nigerian (CBC coefficient = 0.16, p = 0.54 > 0.05, t-value = 0.64). The other explanatory variable, Bank lending
rate (BLR), has a positive and significant impact on AGDP (BLR coefficient = 1069.03, p = 0.004 < 0.05, t-value =
4.22).
Decision: Based on the result above, we reject the null hypothesis and accept the alternate, thus, that there is a
positive relationship between lending rate and the Nigerian real sector with reference to the agricultural subsector
contribution to the GDP, although it is not statistically significant.
Test of Hypothesis two
Hypothesis Ho2: There is no significant relationship between commercial banks credit and manufacturing sector
performance in Nigeria.
The result shows that bank credit has a positive but non-significant impact on the manufacturing subsector
contribution to GDP in Nigeria (Bank credit coefficient = 0.63, p = 0.54 > 0.05, t-value = 1.48). The other
explanatory variable, Bank lending rate (BLR), has positive but non-significant impact on manufacturing subsector
contribution to GDP (BLR coefficient = 83.75, p = 0.85 > 0.05, t-value = 0.19).
Decision: From the analysis above we accept the null hypothesis which indicates that Bank credit does not have
significant impact on real sector performance in Nigeria.
10
Test of Hypothesis three
Hypothesis Ho3: There is no significant relationship between commercial banks credit and mining sector
performance in Nigeria
The result shows that bank credit has a positive and significant impact on the mining subsector contribution to GDP
in Nigeria (Bank credit coefficient = 0.77, p = 0.00< 0.05, t-value = 7.70). The other explanatory variable, Bank
lending rate (BLR), has positive but non-significant impact on mining subsector contribution to GDP (BLR
coefficient = 83.75, p = 0.85 > 0.05, t-value = 0.19).
Decision: From the analysis above we reject the null hypothesis and accept the alternate which indicates that Bank
credit does have significant impact on the mining sector performance in Nigeria.
Test of Hypothesis four
Hypothesis Ho4: There is no significant relationship between commercial banks credit and building and construction
sector performance in Nigeria
The result shows that bank credit has a positive and significant impact on the building and construction subsector
contribution to GDP in Nigeria (Bank credit coefficient = 0.88, p = 0.03< 0.05, t-value = 2.51). The other
explanatory variable, Bank lending rate (BLR), has positive but non-significant impact on building and construction
subsector contribution to GDP (BLR coefficient = 53.75, p = 0.85 > 0.05, t-value = 1.15).
Decision: From the analysis above we reject the null hypothesis and accept the alternate which indicates that Bank
credit has significant impact on the building and construction subsector performance in Nigeria.
5. Discussion of findings
The results revealed that bank credit and bank lending rate do not have significant impact on real sector performance
in Nigeria. What it implies is that not much of bank credit has been channeled towards the growth and development
of the real sector; hence this has accounted for the lack of performance by the real sector. The proxies for the real
sector are the Agricultural sector and the manufacturing sector; on the part of the agricultural sector there has been
neglect of the sector over the years, this has affected the vibrancy of the sector. This study negates the finding of
Udoka, Mbatand Duke (2016) in their study on the effect of commercial banks’ credit on agricultural output in
Nigeria. The estimated results showed that there was a positive and significant relationship between agricultural
credit guarantee scheme fund and agricultural production in Nigeria. This means that an increase in agricultural
credit guarantee scheme fund could lead to an increase in agricultural production in Nigeria; there was a positive and
significant relationship between commercial banks credit to the agricultural sector and agricultural production in
Nigeria.
Likewise, the manufacturing sector has not perform creditably well because of inactivity in the sector as
well. Bank credits are expected to spur growth but when it is allocated sufficiently it will deliver on the expected
yields and returns. This study finding is also contracted by Ebere and Iorember (2016) when they examined the
effect of commercial bank credit on the manufacturing sector output in Nigeria from 1980 to 2015 using Cochrane-
Orcutt method. Their study revealed that loans and advances and broad money supply have positive effect with
manufacturing sector output in Nigeria.
The mining and construction subsectors have not also perform optimally given the amount of bank credit
they have attracted over the years. Whereas, these are subsectors that should be leading the way in terms of
economic activities being generated in a developing economy like Nigeria. This is a wakeup call for the economic
planners to look in the direction of the real sector so as to ensure that the nation attain a rapid growth experience.
6. Conclusion
From the analysis made, it can be concluded that Bank Credit has a positive but non-significant impact on the
Nigerian real sector. Bank Credit remains one of the viable options for Banks Profitability and also serves as a
vehicle of growth and development for the Nigerian Economy. It can be concluded also that financial intermediation
functions of banks have a prominent role in determining the performance of the Nigeria economy.
11
7. Recommendations
With regard to the study findings, the recommendations made in this study are;
 Given the capacity of the real sector to deliver on anticipated economic growth, it was recommended that
banks should be directed to channel their credits towards the real sector to facilitate overall economic
growth and development in Nigeria.
 Likewise, it was recommended that there is the need policies that will favour the revamp of the agricultural
sector in Nigeria should be given pride of place. This is because; the agricultural subsector will have
positive effect on the manufacturing through the supply of raw materials for to be manufactured into
finished products.
 The monetary authority through the Central Bank of Nigeria should create adequate policies and strategies
towards deepening of the financial sector and reducing the cost of credit/loans so as to enhance productivity
and consequently enhance the growth of the key sectors of economy such as manufacturing sector.
 Considering the volume of money within the economy, the government should encourage monetary
authorities such as Central Bank of Nigeria (CBN) to reduce the interest rate of loans to attract prospective
investors in order to accessed bank credits so as to increase investments, which in turn will lead to increase
in the country’s production capacity most especially in the manufacturing sector.
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American International Journal of Supply Chain Management

Vol. 1, No. 1; 2020

Commercial Banks Credit and the Performance of Real Sector in

Idih Ogwu Emmanual PhD

Adewole Joseph Adeyinka PhD

2.2 Theory of Financial Intermediation

2.3 The Structuralism Approach

Banking Structure and Intermediation Efficiency

2.4 Endogenous Growth Theory

2.5 The Loanable Funds Theory of Interest Rate

AGDP = b0 + b1X1 + b2X2 + U

MnfGDP = b0 + b1X1 + b2X2 + U

Min GDP = Mining subsector contribution to GDP

CGDP = b0 + b1X1 + b2X2 + U

4.1 Data Presentation

Tables 4.1.1& 4.1.2: Showing data of variables used for analysis

YEARS GDP BANK CREDIT AGRIC TO GDP MANUF. TO GDP

2010 54612.26 7706.4 10310.66 643.07

Table 4.1.2 Showing Data for Analysis

YEARS MINING (BILLIONS BUILDING &

4.2 Data Analysis

Dep. Var: Coefficient Std Error t-stat. Prob. Remark

Source: Researcher’s E-views Computation Version 8

AGDP = - 14056.81 + 0.16 CBC + 1069.03 BLR

Table 4.2.2 Regression Result for Hypothesis Two

Dep. Var: Coefficient Std Error t-stat. Prob. Remark

MNFGDP = - 5051.85 + 0.63 CBC + 83.75 BLR

Table 4.2.3 Regression Result for Hypothesis Three

Dep. Var: Coefficient Std Error t-stat. Prob. Remark

MNGDP = - 2032.52 + 0.77 CBC + 44.51 BLR

Table 4.2.4 Regression Result for Hypothesis four

Dep. Var: BCGDP Coefficient Std Error t-stat. Prob. Remark

BCGDP = - 4091.57 + 0.88 CBC + 53.75 BLR

Test of Hypothesis One

Test of Hypothesis two

Test of Hypothesis three

Test of Hypothesis four

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