IMPACT OF BANKING SECTOR INTERMEDIATION ON THE NIGERIAN ECONOMY

Abstract

This paper assesses the role of the banking sector in the channeling of funds to private enterprises for productive investment by examining relationships between the mobilization and allocation functions of the banking sector and economic growth in Nigeria using a regression model. The study employed gross domestic product as proxy for economic growth, while total private sector deposit (TPSD) and credit to the private sector (CPS) were proxies for banking sector intermediation. The results revealed that there was a positive and significant impact of mobilized funds on economic growth and a negative and significant impact of allocated funds on economic growth. This indicates that the real sector did not benefit by way of accessing credit from the banking sector, although the banking sector showed the capacity to channel funds in form of credit to the private sector during the period under study. This is an indication that the Nigerian banking sector is still underdeveloped. In line with these findings, policy makers should come up with initiatives to motivate the deposit money banks to make funds available to the private sector by making it easier for entrepreneurs to access credit.