DEPOSIT MONEY BANKS’ PERFORMANCE AND THE MANUFACTURING SECTOR OUTPUT IN NIGERIA

Abstract

This paper analyzed the performance of Deposit Money Banks (DMBs) and the growth of the Manufacturing sector over a period of forty years (1981-2024). The paper had the objective of determining the impact of banks’ credit as a proxy for DMB performance on the manufacturing sector output; estimating the impact of banks’ credit through financial deepening and interest rate on Gross Domestic Product; and determining the long run relationship between banks’ credit and the growth of GDP; The study employed Autoregressive Distributed Lag Model after pre-estimation tests of unit root and co-integration tests. An interactive model was used todetermine the channel through which domestic credit to the private sector will be more effective. The result of the unit root showed that the variables were integrated of order one and zero, thereby making the Autoregressive Distributed Lag (ARDL) Model suitable for the study. The ARDL result showed that the coefficient on domestic credit to the private sector was statistically significant. Theimpacts of exchange rate, government expenditure, and lagged monetary policy rate levels (lag 1 and lag 2) on manufacturing output were statistically significant, as indicated by the results. The interactive model showed that domestic credit to the private sector is more effective when interest rates are managed moderately.