Effect of Policy Rate on Credit Extension in Nigeria

Abstract

The study investigated the effect of the policy rate on credit extension in Nigeria, focusing on three commercial banks from 2019 to 2023. The main aim was to understand how policy rate adjustments influence credit extension within the Nigerian banking sector, given the Nigeria’s unique economic challenges and regulatory environment. Panel linear regression model to analyze the effect of policy rate and credit extension, while controlling for other macroeconomic variables such as inflation, GDP growth, and the exchange rate. Findings revealed that changes in the policy rate, GDP, and exchange rate do not significantly impact bank credit and non-performing loans (NPLs) in Nigeria. This suggests that factors beyond those considered in this study might play a more crucial role in influencing bank lending and loan performance. Based on these findings, it was recommended that policymakers adopt a broader approach when formulating policies aimed at enhancing credit extension and managing NPLs. This approach should include considering a wider array of factors that may affect bank lending and loan performance.