Skip to main navigation menu Skip to main content Skip to site footer


Vol. 7 No. 1 (2016): June 2016

Impact of Banks' Size and Efficiency in Financing Real Sector Growth in Nigerian Economy

December 30, 2016


In spite of the implementation of several banking sector reforms, the real sector of the Nigerian Economy is still bedevilled with inadequate access to finance especially from the deposit money banks that hold about 90% of the total financial sector assets. Nominal interest rate is high causing many firms to avoid bank-borrowing. These myriad financing challenges facing the real sector call for the assessment of finance-growth nexus in Nigeria. In this regard, this study examined the long run relationship between some selected financial development indicators and real sector growth in Nigeria over the period 1970-2014. Based on the nature of the study, correlational research design was adopted while secondary data were mainly employed. Johansen and Juselius (1990) approach to cointegration and Vector Error Correction Modelling (VECM) was used to determine the extent of the relationship between the variables. The findings of the study revealed that in the long-run and liquid liabilities of deposit money banks exert statistically significant and negative influence on real sector growth, conversely, credit to the private sector, level of investment and interest rate spread exert statistically significant and positive influence. The policy implications are these; financial reforms and policies should focus on formulating policies that liberalise the interest rate and enhance financial intermediation will result in high economic growth, moreover, government should direct their borrowing towards encouraging and financing entrepreneurs which prove to increase investment and in turn real sector growth.

Keywords: Size, Efficiency, Financing, Real sector