EVALUATING THE EFFECTS OF BANKING REFORMS ON CREDIT GENERATION IN NIGERIA

This study examines the Nigerian banking sector’s performance before and after the 2005 reforms, with a focus on banks’ credit creation capacity. Motivated by the implications of economic reforms on Nigeria’s development, the study analyzes how banks performed during and after the reforms, highlighting associated challenges and benefits. Regression analysis was conducted using the E-Views statistical package. The correlation coefficient (R²) indicated that variations in the dependent variables were better explained by the independent variables after the reforms than before. Findings reveal that the 2005 reforms significantly enhanced banks’ credit creation capacity compared to pre-reform levels, supporting the alternate hypothesis that banks’ ability to create credit before the reforms was not greater than after. However, recent challenges, including rising inflation, high unemployment, a declining naira, and reduced foreign investment since 2016, have constrained banks’ capacity to create credit for economic growth. The study recommends that Nigerian monetary authorities enhance banks’ credit creation by reducing prevailing interest rates, thereby stimulating consumer credit-to-GDP and consumer spending-to-GDP ratios.