Effect of Sectoral Credits on Bank Capital Adequacy in Nigeria
Abstract
This study examined the effect of sectoral credit (agricultural credit, manufacturing credit, and small and medium enterprises (SME) credit), on capital adequacy of deposit money banks in Nigeria from 2000Q1 to 2023Q4. The study employed ex-post facto research design, and secondary data obtained from the Central Bank of Nigeria (CBN) statistical bulletin and the World Bank Development Indicator. Using Johansen cointegration, Fully Modified Ordinary Least Square (FMOLS), and Granger causality techniques, both long-run and short-run dynamics were analysed. Findings revealed that agricultural and manufacturing credits negatively affect capital adequacy, while SME credit has a positive impact on banks’ capital adequacy. Mutual causality existed between manufacturing credit and capital adequacy, but not with SME credit. In line with the findings of this study, the study concluded that sectoral credits has a significant effect on banking sector capital adequacy in Nigeria. The study therefore recommends that sector-specific credit policies be promoted for SME credit under flexible regulations, while applying stricter capital requirements to agricultural and manufacturing credits.
Keywords
capital adequacysectoral creditFMOLSGranger causalityNigeria
References
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