IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 8 NO. 3 2022
DOI: https://doi.org/10.56201/ijbfr.v8.no3.2022.pg10.27

---

Stock Market Capitalisation, Banks’ Lending and Deposit Interest Rate in Relation to Financial Liberalisation Theory in Nigeria (1985-2021)

EFUNTADE, Alani Olusegun, FCIB, ACA , EFUNTADE, Olubunmi Omotayo

---

Abstract

The paper examines the impact of deposit rates on savings, lending rates on credits and market capitalization of Nigerian Exchange group limited from 1985 to 2021, using co-integration and vector error correction approach. The specific objectives were to estimate the short-and long-run association as well as the error correction mechanism of lending interest rate and deposit interest rate and stock market capitalization in Nigeria. The outcome of the exercise validated the hypothesis of financial liberalisation theory that deposit rates on savings, lending rates on credits on market capitalization of Nigerian Exchange group limited. Deposit interest rate and lending interest rate have significant explanatory power for stock market capitalization, which is consistent with our expectations in line with financial liberalization theory in Nigeria. The regulatory body should mandate banks to channel their mobilised savings to investors in form of loans at reasonable interest rate. Hence, the pointer should be to identify those constraints and bottlenecks that are making it difficult for banks to make loans available to investors. The issue of high interest rate with hidden transaction costs must be vigorously addressed by the monetary authorities; Monetary authorities should pursue policies that will encourage the saving culture of the people. This could be done by increasing the deposit rate which would lure people to deposit their money in banks thereby increasing the supply of loanable funds. This would lead to a fall in interest rate and eventually rise in investment in stock market development.

keywords:

Stock Market Capitalisation, Deposit Interest Rate, Financial Liberalisation Theory Lending Interest Rate. Jel classification: O40, G10, G15, G21

---

References:

Adekunle, O., Adodo, L. F., & Akindutire, T. (2018). Interest rate and growth nexus in Nigeria.
International Journal of Business Management and Technology, 2(4), 80-87.

Anwar, N. & Nguyen, N. (2018). Channels of monetary policy transmission in Vietnam.
Journal of Policy Modeling, Elsevier, 40(4), 709-729.

Asaleye, A. J., Popoola, O., Lawal, A. I., Ogundipe, A. & Ezenwoke, O. (2018). The credit
channels of monetary policy transmission: implications on output and employment in
Nigeria. Banks and Bank Systems, 13(4), 103-118.

Azeez, B. A., & Obalade, A. A. (2019). Macroeconomic determinants of stock market
development in Nigeria. Economica, 15(1), 203-216.

Bassey, G. E., Akpan, P. E. & Umoh, O. J. (2018). An assessment of the effectiveness of open
market operations instrument of monetary policy management in Nigeria. Journal of
Economics and Sustainable Development, 9(8), 120-132.

CBN (2021). Annual Reports and Statement of Account.

CBN (2021). CBN Statistical Bulletin, Volume 26, December.

Demir, C. (2019). Macroeconomic determinants
7(8), 1-14.
of stock market fluctuations.
Economies,

Engle, R. & Granger, C. (1987). Cointegration and Error-Correction: Representation, Estimation
and Testing. Econometrica 55, 251-76.

Etale, L. M. & Tabowei, P. I. (2019). Macroeconomic determinants of market capitalization in
Nigeria: A further investigation. International Journal of Quantitative and Qualitative
Research Methods, 7(4), 11-25.

Gurley, J., & Shaw, E. (1967). Financial Structure and Economic Development. Economic
Development and Cultural Change, 34,333–346.

Goldsmith, R.W. (1969). Financial Structure and Development. New Haven: Yale University
Press.

Gujarati, D. N. (2004). Basic Econometrics, Third Edition. (McGraw Hill).

Jhingan M. L. (1997). Macro-Economic Theory, 10th revised enlarged edition. Vrinda
Publications (P) Ltd., India.

Jhingan, M. L. (1999). Money, Banking and International Trade. Vrinda Publications (P)
Ltd., New Delhi, India.

Jhingan M. L. (2000). Macro-Economic Theory, 10th Revised and Enlarged Edition.
Vrinda Publications (P) Ltd., India.

Levine, R., 2005. Finance and Growth: Theory and Evidence. In Handbook of Economic
Growth, ed. by P. Aghion and S. Durlauf (Amsterdam: Elsevier).

Levine, R. & Zervos, S. (1998). Capital Control Liberalization and Stock Market Development.
World Development,26,1169–1183.

Matousek, R. & Solomon, H. (2018). Bank lending channel and monetary policy in Nigeria.
Research in International Business and Finance, 45, 467-474.

McKinnon, R. I. (1973). Money and capital in economic development. Washington DC:
Brookings Institution.

McKinnon, R.I., 1973, Money and Capital in Economic Development (Washington: Brookings
Institution).

Mordi, C. N. O., Adebiyi, M. A. & Omotosho, B. S. (2019). Modelling interest rates pass-
Through in Nigeria: an error correction approach with asymmetric adjustments and
structural breaks. Contemporary Issues in the Nigerian Economy: A Book of Readings,
Central Bank of Nigeria.

Ojima, D. & Emerenini, F. M. (2015). Impact of Interest Rate on Investment in Nigeria.
Developing Country Studies, 5(3),103-109.

Okon, E. O. & Osinimu, O. J. (2017). Interest Rate and Private Sector Investment
Relationship in Nigeria: Crowding-In or Crowding-Out Effect (A Look at Small
and Medium Enterprises), International Journal of Investment Management and
Financial
Innovations,3(2)10-23.

Olusuyi, M., Adebayo, C., Agbolade, A. & Ebun, C. (2017). Workers‘ remittance and their
effect on the level of investment in Nigeria: An empirical analysis. International
Journal of Economic and Finance, 5 (4), 89-99.

Osadume, R. (2018). Effect of interest rate mechanisms on the economic development of
Nigeria, 1986-2016. IIARDInternational
Management, 4(4), 91-115.

Journal of Economics and Business Priscilla, C. I., & Ezeanyeji, C. I. (2019). Financial development and economic growth nexus in
Nigeria. International Journal of Business and Management Invention, 8(3), 50-63.

Shan, J. Z., Morris, A. G., & Sun, F. (2001). Financial development and economic growth:
An egg and chicken problem? Review of International Economics, 9,443–454.

Shaw, E. S. (1973). Financial deepening in economic development. New York: Oxford
University Press.

Shaw, E. S., 1973. Financial Deepening in Economic Development. New York: Oxford
University Press).

DOWNLOAD PDF

---

Back