Effect of Bank Loans on Agricultural Output in Nigeria

Abstract

This study empirically assessed the impact of commercial banks’ lending on agricultural output in Nigeria from 1985 to 2019 by specifically ascertaining the impact of commercial banks’ lending on real gross domestic product and index of industrial production. The data sourced from the Central Bank of Nigeria statistical bulletin were diagnosed for unit root and stationarity. The Johansen co-integration revealed a long run relationship between commercial banks’ lending and gross domestic product but such could not be said for index of industrial production. The granger impact assessment result shows that commercial banks’ lending has significant impact on agricultural output in Nigeria. The vector error correction model depicts that for achievement of
long term growth and development of the Nigerian economy, commercial banks’ lending is very pivotal as the high interest rate charged by commercial banks’ remain a threat to the positive influence of banks’ credit to the economy. The Central Bank of Nigeria should implement regulation to stop banks from centring loans and advances to a particular sector which is, oil and gas to improve credit flow to other strategic sectors, especially agriculture and industries to increase their contributions to agricultural output in Nigeria. The monetary policy of the Central Bank of Nigeria should complement fiscal policies of the government to reduce the level of inflation in country, having regard to its negative effect on index of agricultural production.