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Effect of Interest Rate Deregulation on Loans and Advances of Deposit Money Banks in Nigeria

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  • Francis Ojo Adebayo

    (Enterprise Development & Promotion Department, Federal Ministry of Youth & Sports Development, Abuja, Nigeria)

  • Ilemona Adofu PhD

    (Department of Economics, Federal University of Lafia, Nasarawa State, Nigeria)

Abstract

The study examined the impact of the lending and deposit rates in the face of deregulation on the loans and advances of deposit money banks in the country covering the period of 1986 to 2019 using annual time series data. Using the Autoregressive Distributed Lag (ARDL) model, findings from the study revealed that the deregulation of interest rate in Nigeria encouraged the disbursement of loans and advances within the economy, but it was however not significant. In addition, the study found that the policy led to an inverse relationship between deposit rate and loans and advances in the country. Higher deposit rates significantly discouraged deposit money banks from granting loans and advances. To ensure that interest rate deregulation has a much significant effect on the loans and advances of deposit money bank, the deregulation of the sector must be full, as against the partial deregulation being presently practiced, to encourage the desired level of competition which would spur the growth of the sector, and ultimately expand credit facilities for the Nigerian economy.

Suggested Citation

  • Francis Ojo Adebayo & Ilemona Adofu PhD, 2021. "Effect of Interest Rate Deregulation on Loans and Advances of Deposit Money Banks in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(4), pages 345-352, April.
    • Handle: RePEc:bcp:journl:v:5:y:2021:i:4:p:345-352
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    References listed on IDEAS

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    1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    2. Mustapha A. Akinkunmi, 2017. "Regulatory Impact of Bank Performance in Nigeria: Application of Stochastic Frontier Analysis," Applied Economics and Finance, Redfame publishing, vol. 4(4), pages 32-43, July.
    3. Tajudeen, Egbetunda & Taofeek Olusola, Ayinde & AbdulGaniy Ademola, Balogun, 2017. "Interest Rate Liberalization, Financial Development and Economic Growth in subSaharan African Economies," African Journal of Economic Review, African Journal of Economic Review, vol. 5(2), July.
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