Commercial Bank Credit and Economic Growth in Nigeria

Abstract

The aim of this study is to examine the effect of credit from commercial banks on the economic growth of Nigeria from 1992 to 2023.. Using the ARDL approach, it analyzes the short-run and long-run impact of commercial and merchant bank credit (CMBC) on GDP growth. The bounds test confirms a significant long-run cointegrating relationship. Short-run results show a positive immediate effect on growth from credit expansion, which reverses into a significant negative effect in the following period. In the long run, the coefficient for commercial bank credit is positive but statistically insignificant. The findings indicate that while commercial bank credit provides a short-term growth stimulus, its long-term contribution is muted, likely due to allocative inefficiencies and high lending costs. The study therefore recommends policy interventions to reduce interest rates and improve credit allocation within the commercial banking sector.