Deposit Money Banks' Financial Intermediation and Performance of the Manufacturing Sector in Nigeria

Fatola, Opeyemi Akindele () and Adejuwon, Joshua Adewale ()
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Fatola, Opeyemi Akindele: Department of Management and Accounting, Postal: Lead City University,, Ibadan, https://www.afarng.org/jfafi/
Adejuwon, Joshua Adewale: Department of Management and Accounting, Postal: Lead City University,, Ibadan, https://www.afarng.org/jfafi/

Journal of Forensic Accounting & Fraud Investigation (JFAFI), 2022, vol. 7, issue 1, 21-45

Abstract: Every country strives towards sustainable economic development, therefore, the place of financial intermediaries in reallocating financial resources to the deficit side as credit to achieve this, cannot be overemphasized. The Manufacturing Sector in Nigeria which comprises of some other sub-sectors has not been performing encouragingly well despite increasing credit made available to it by Deposit Money Banks, year in year out. More recent of this poor performance was a decline of -2.79% in the sector's contribution to the RGDP in 2020 as against the preceding year. Thus, this study investigated the varying dynamic relationship between Deposit Money Banks' financial intermediation and the performance of the Manufacturing sector in Nigeria, using exogenous variables such as Deposit Money Banks' Credits to the Manufacturing Sector (DMBCMS), Demand Deposits (DD), Deposit Interest Rate (DIR) and Lending Interest Rate (LIR) on Manufacturing Sector's Output (MNOUT), the endogenous variable, using annual secondary data spanning from 1981 – 2020 sourced majorly from statistical bulletins from the Central Bank of Nigeria (CBN). Unit root and cointegraton tests indicated that the variables were of different orders, with long run relationship, which informed the use of ARDL. There were mixed results in both the short and long-runs. Notably was DMBCMS having a negative effect on the performance of the sector both in the short and long-run, which could be due to the negative effect of lending interest rate. ECT and the F-statistics were significant at 1% with a 91% and 1.72 R-squared and DW values respectively. Residual diagnostic tests all turned out efficient for forecasting. A major recommendation is that policies be made to lower lending rates to encourage investors as high lending rates is detrimental not just to the performance of the sector, but to economic growth as a whole and discourage importations in favour of domestic productions.

Keywords: Deposit Money Banks; Financial Intermediation; Manufacturing Sector; CBN; ARDL (search for similar items in EconPapers)
Date: 2022
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