MONETARY POLICY TRANSMISSION AND BANK LENDING BEHAVIOR IN NIGERIA (2002-2024)

Abstract

Despite continuous monetary policy interventions by successive Nigeria government, the transmission of policy signals to the banking sector has remains weak and inconsistent, resulting in persistently high lending rates and limited credit to the real sector of the economy. The main objective of this study is to examine the effect of monetary policy transmission on bank lending behavior in Nigeria. The study spanned for a period between 2002-2024. The study made used of ex-post facto research design. The study conducted both pre and post estimation test. ARDL model was used as the main estimation technique with the aid of E-view 10.0 statistical software was used. The study found that real interest rate has a positive and insignificant effect on prime lending rate in Nigeria, broad money supply has a negative and insignificant effect on prime lending rate in Nigeria and bank liquidity ratio has a positive and statistically significant effect on prime lending rate in Nigeria. The study concluded that monetary policy transmission through interest rate and banking sector liquidity channels plays a significant role in influencing lending behaviour in Nigeria’s banking system. The study recommended that Central Bank should adopt a well-coordinated interest rate policy that promotes macroeconomic stability while ensuring that borrowing costs remain moderate enough to stimulate investment and productive economic activities. Central Bank should adopt a well-coordinated interest rate policy that promotes macroeconomic stability while ensuring that borrowing costs remain moderate enough to stimulate investment and productive economic activities. Policymakers should strengthen financial intermediation mechanisms within the banking sector to ensure that increases in money supply are effectively transmitted to the real sector through credit expansion.