Effect of Deposit Money Bank Activities on Financial Sector Development in Nigeria

Jimoh Abdulkabir Taiwo
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Jimoh Abdulkabir Taiwo: Department of Banking and Finance, Faculty of Administration, Nasarawa State University Keffi, Nasarawa State.

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 8, 1128-1146

Abstract: The specter of non-performing loans (NPLs) looms as a critical concern within the context of Deposit Money Bank (DMB) activities in Nigeria. This apprehension is particularly pronounced when DMBs partake in risky lending practices, resulting in a substantial build-up of non-performing loans. The ramifications of such a scenario extend beyond the individual banks, impacting their financial health and, consequently, casting shadows on the overall stability of the financial sector. Given this foregoing, this study examines the effect of deposit money bank activities on financial sector development in Nigeria using time series data spanned over a period of eleven (11) years 2012 to 2022. The study adopted the ex-post-facto research design and secondary data used in the study was sourced from CBN annual statistical bulletin for relevant years. Descriptive statistics, Augmented Dickey Fuller Test (ADF), error correlation model, ordinary least square (OLS) regression techniques and post estimation test were the main statistical tools used to analysis the data with the help of E-view 10 statistical package. The finding of this study revealed that loans and advances and deposit liability exerts a positive and significant effect on financial sector development while interbank placements have negative and insignificant effect on financial sector development in Nigeria. The study recommended that deposit money banks should advocate for and enforce responsible lending practices among financial institutions, this involves ensuring that loans are extended based on sound risk assessment, with proper consideration given to the borrower’s creditworthiness and ability to repay.

Date: 2024
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