Deposit Money Banks and Economic Development in Nigeria

This study investigated the impact of the activities of Deposit Money Banks (DMBs) on economic development in Nigeria. Economic development was proxied by gross domestic product per capita (GDPPC), while the activities of Deposit Money Banks were measured by five independent variables: broad money supply (MS), credit to the private sector (CPS), savings rate (SR), prime lending rate (PLR), and maximum lending rate MLR). Data on these variables for the period 1981 to 2023 were sourced from the Central Bank of Nigeria Statistical Bulletin, and the World Bank Development Indicators for Nigeria. The stationarity of each variable was tested using the Augmented Dickey-Fuller unit root test which revealed that all the variables became stationary after taking the first difference. The Johansen cointegration test confirmed that the variables have long-run relationship after identifying two cointegrating equations. Estimates of the parsimonious error correction model indicate that broad money supply, credit to private sector, and savings rate all have insignificant impacts on economic development in Nigeria. Conversely, both prime lending rate, and maximum lending rate have significantly influence on Nigeria’s economic development. A unit increase in PLR and MLR led to about a 1.24- and 0.11-unit improvement in Nigeria’s economic development respectively. Based on the findings, the study recommended among others that the Nigerian government through the monetary authorities should maintain and monitor the prime lending and maximum lending rates, to avoid fluctuations that may cause these variables to impact negatively or insignificantly on the nation’s economic development.