DEPOSIT MONEY BANKS AND ECONOMIC GROWTH NEXUS IN NIGERIA

This study investigates the nexus between deposit money banks and economic growth in Nigeria from 1999 to 2023. The research addresses the persistent gap between the potential of deposit money banks to drive economic prosperity and the observed non-inclusive growth in Nigeria. Utilizing a multiple regression analysis with GDP as the dependent variable and bank performance (BFOR), financial intermediation (FINT), capital stock (CAPS), liquidity ratio (LQR), bank bad debts (BADT), prime rate (PRIM), and inflation rate (INFL) as independent variables, the study employed data spanning 25 observations. The regression results reveal several significant relationships. Financial intermediation (FINT) demonstrated a statistically significant positive impact on economic growth, with a coefficient of 1.101821 (p < 0.001), suggesting that increased financial intermediation by deposit money banks is associated with higher economic growth. Conversely, capital stock (CAPS) exhibited a statistically significant negative coefficient of -0.225789 (p < 0.01), which is counterintuitive and warrants further investigation in the discussion. The prime rate (PRIM) also showed a statistically significant negative relationship with economic growth, indicated by a coefficient of -0.248487 (p < 0.01), implying that higher lending rates hinder economic expansion. Similarly, inflation rate (INFL) had a statistically significant negative impact on growth, with a coefficient of -0.150350 (p < 0.01). Bank performance (BFOR) surprisingly showed a statistically significant positive coefficient of 0.000681 (p < 0.001), though its magnitude is small. Liquidity ratio (LQR) and bank bad debts (BADT) did not show statistically significant relationships with economic growth in this model. The R-squared value of 0.360525 indicates that approximately 36.05% of the variation in economic growth is explained by the independent variables in the model. The statistically significant F-statistic (p < 0.001) suggests that the overall model is a good fit. The Durbin-Watson statistic of 1.883838 suggests the absence of significant autocorrelation. Based on these findings, the study recommends policies aimed at enhancing financial intermediation by deposit money banks to channel more funds into productive sectors. Efforts to reduce the prime lending rate and control inflation are crucial to stimulate investment and consumption.