Impact of Deposit Mobilisation on Deposit Money Banks' Lending in Nigeria

Abass A. Adewale, Ebenezer A. Adebisi, Lucky S. Ozabeme, Mary O. Akosile, Omotayo L. Alabi & Saheed A. Shittu

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Abstract

Deposit mobilisation plays an important role in strengthening the lending capacity of deposit money banks and promoting private sector investment. The study employed annual secondary data from Nigeria covering the period 1990–2024 to investigate the effect of deposit mobilisation on deposit money banks’ lending. The short-run and long-run relationships between the variables were estimated using the technique of Autoregressive Distributed Lag (ARDL). The ARDL Bounds test confirmed that there is a long-run relationship between the variables. The long-run estimates showed that money supply had a positive and statistically significant effect on credit to the private sector, while the effects of the savings deposit rate, bank branches, and inflation were statistically insignificant. In the short run, bank branches and money supply exerted positive and statistically significant effects on credit to the private sector, whereas inflation had a negative but statistically insignificant effect. The error correction term was negative and statistically significant, suggesting a quick response to short-run shocks to reach the long-run equilibrium. The study concluded that enhancing banking liquidity and expanding banking outreach can improve lending by deposit money banks in Nigeria. The study recommended that the Central Bank of Nigeria should maintain adequate liquidity in the monetary system and ensure price stability. At the same time, the deposit money banks should intensify deposit mobilisation by expanding their branch networks strategically, improving their savings products and improving their services to customers to support sustainable loan extension.

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