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

Francis Ojo Adebayo and Ilemona Adofu PhD
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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

International Journal of Research and Innovation in Social Science, 2021, vol. 5, issue 4, 345-352

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.

Date: 2021
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