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Title:
ANALYSIS OF DEPOSIT MONEY BANKS' FINANCIAL INTERMEDIATION AND NIGERIAN REAL ECONOMY - (1987 TO 2015)

Authors:
Uwakaeme, O. S. (Mrs), Nigeria

Abstract:
In Nigeria, the banking sector dominates the Nigerian financial system as it accounts for about 90% of the total assets in the system. Implicitly, the banking sector has not contributed significantly to the growth and development of Nigerian economy as expected. This study therefore examines the level of development of Deposit Money Banks' financial intermediation and how it impacts on the real growth of Nigeriaís economy, .for the period 1987 to 2015, using secondary data, sourced from CBN publications. Applying Ordinary Least Square regressions model, unit root test, Granger causality and co-integration tests, the study established that variations in the selected financial intermediation indicators employed in the study namely: aggregate DMB deposit, total private sector credit, savings ratio, maximum lending rate and inflation rate, in aggregate, account for about 87.3% variation in economic growth process in Nigeria for the period under review. This strongly suggests that financial intermediation indicators have strong influence in the changes in real economic growth either negatively or positively. However, the total DMB credit to the private sector and savings ratio to GDP have inverse and significant relationship with growth(RGDP} while aggregate DMB deposit ( proxy for size of intermediaries) has positive but insignificant relationship with RGDP. This indicates that bank credit to private sector does not contribute effectively to the growth of the economy, despite the size of the intermediaries. Inverse relationship of savings ratio signifies that Nigerians has poor savings habit due to acute poverty and poor financial inclusion. High interest and inflation rates which are control variables are negatively and significantly related to RGDP, implying that they are constraints to financial intermediation benefits. The Granger causal test is inconclusive. The study recommends that the optimal interest (lending) rate should reflect the overall internal rate of return in the productive sector with due attention to market fundamentals to encourage private sector credit. The need for the monetary authority to maintain low and stable prices in order to encourage sustainable growth in the real sector should be highly emphasized. Lastly, infrastructural improvement in the rural areas, structural reforms, financial literacy, and other strategies by the government that will encourage increased savings and credit to the poor should be intensified to reduce financial exclusion.

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