Recent Banking Reforms in Nigeria: Implications on Sectoral Credit Allocation and Economic Growth

Abstract

Since 2004, the Central Bank of Nigeria (CBN) has embarked on several intensive banking sector reforms to strengthen the hitherto weak and fragmented banking sector to adequately perform its essential intermediately functions. This paper examines the implications of the reforms on sectoral credit allocations and economic growth, using both analytical and ordinary least squares estimating techniques. We find that despite the drastic reduction in the number of commercial banks during the reform period, credit allocated to the activity sectors (agriculture, mining & quarrying, manufacturing, communication, and oil and gas) improved. The coefficients of mining & quarrying and oil & gas are found to be statistically significant at 0.05 level. Our estimated model is not spurious, but implies that one (1) percent increase in credit allocation to the mining & quarrying subsector improved economic growth by about 52.4 percent, while a similar one (1) percent increase in credit allocation to the oil & gas subsector impeded economic performance by about 30.6 percent. We recommend that the CBN should continue with its banking sector reforms, encourage substantial credit allocation to the prioritized activity sectors, build and upgrade the economy’s human capacity based on new challenges and opportunities, and synergize with other agencies and policies in the system to ensure sustainable economic growth.