Determinants of Credit Growth in Nigeria: A Multi-Dimensional Analysis

This study examined the determinants of credit growth in Nigeria. Annual time series data were sourced from Central Bank of Nigeria statistical bulletin from 1981-2016.Three multiple regression models were formulated to examine the effect of macroeconomic variables, monetary policy variables and international variables on the growth of Nigeria’s net domestic credit. The unit root test indicates that all the variables are stationary at first difference using the Augmented Dickey Fuller (ADF) test. The Johansen Cointegration test result shows that there exists a positive long run dynamic relationship between the dependent and the independent variables. The Granger causality test shows a uni-variate relationship from the independent to the dependant variable. From the macroeconomic variable, public expenditure, inflation rate and capital formation have a negative relationship with growth of Nigeria net domestic credit while real gross domestic product, government revenue and balance of payment have a positive impact on the dependent variable, we conclude that macroeconomic variables have significant effect on the growth of Nigeria’s net domestic credit. From the monetary policy variables, treasury bill rate, interest rate and compliance to credit rules have a negative effect on net domestic credit while monetary policy rate, financial deepening and growth of broad money supply have a positive effect on the dependent variables. We also conclude that monetary policy variables have no significant relationship with the growth of net domestic credit in Nigeria. While from the international variables, exchange rate, international liquidity, foreign direct investment and openness of the economy have positive effect on net domestic credit whereas cross boarder credit and net foreign portfolio investment have negative relationship with net domestic credit. From the result, we conclude that international variables have no significant relationship with the growth of net domestic credit in Nigeria. We therefore recommend that macroeconomics, monetary and external policies should be formulated to achieve equilibrium level of net domestic credit in the economy. KEYWORDS: CREDIT GROWTH, MACROECONOMIC VARIABLES, MONETARY POLICY VARIABLES, INTERNATIONAL VARIABLES