Abstract:

The main aim of this study is to determine the extent to which the growth of the real sector is influenced by the financing capacity (intermediation) of the deposit money banks in Nigeria. The study investigated the effect of the long run financing capacity of the banking sector to the growth of the real sector in Nigeria using data spanning 1985- 2016. Secondary data was collected from the CBN statistical bulletin and National Bureau of Statistics. Hypothesis was formulated and tested using augmented Toda Yamamoto estimate. Data of this study was conducted using Phillip Perron (PP) test at levels and at first difference. Variables such as lending rate, total bank assets, gross domestic savings, distribution of commercial bank loans and advances to agricultural sector and agricultural sector output. Evidences from the table shows that all variables with the exception of lending rate reveal a non stationary trend process at levels. Hence the hypothesis of unit root cannot be rejected for the series at levels. The study therefore employed first differencing for all the variables. It was further observed that a trend stationarity process was achieved from all the series at first differencing using 1% level of significance. The study concludes that there is a significant but indirect relationship between bank’s lending rate and the agricultural sector output. Also, total bank asset has a significant and a direct effect on agricultural sector output, gross domestic savings (GDS) appears to be less significant and inversely related to AGDP, while ADCL showed a direct relationship between ADCL and AGDP, though not significant (because of its positive lag coefficient of 0.145%) in promoting or adding to the growth of the agricultural sector, but could result to significant positive effect in the future. The financing capacity of deposit money banks to finance agricultural sector is been determined by the magnitude of total bank asset. The study therefore recommends that deposit money banks should increase the channeling of financial resources to the viable sector (agricultural sector) of the economy so that the level of economic development can increase. Also, there should be a regulatory frame work that will ensure such financial institutions to channels their resources to the most viable sector of the economy so as to enhance economic development of Nigeria.