Abstract

<p>This study investigates the impact of commercial banks’ lending on domestic investment in Nigeria over the period 1990 to 2023. Employing an ex-post facto research design, the study utilizes secondary data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin (2023). Domestic investment is proxied by gross fixed capital formation, serving as the dependent variable, while four explanatory variables are examined: bank loans to the real sector, bank loans to government, bank loans to general commerce, and commercial bank loans relative to total bank assets.</p>
<p>The study employs the ordinary least squares (OLS) regression technique to estimate the relationships among the variables. The empirical findings reveal that commercial bank loans to general commerce, loans to the real sector, and the ratio of bank loans to total assets all have a positive and statistically significant effect on domestic investment. Notably, the coefficient of determination (R²) indicates that approximately 75% of the variation in domestic investment is explained by the commercial bank lending variables, highlighting the substantial role of the banking sector in capital formation.</p>
<p>Based on these results, the study concludes that commercial bank lending plays a critical role in promoting domestic investment in Nigeria. It recommends that the government create an enabling environment for businesses—small, medium, and large—to thrive. This can be achieved through the implementation of supportive monetary and fiscal policies, such as lowering interest rates, maintaining exchange rate stability, and promoting economic diversification. Furthermore, the study advocates for the establishment of specialized banks focused on financing the real sector to enhance productive investments and drive sustainable economic growth</p>