Credit Policy and Its Implications for Bank Lending in Nigeria

Abstract

The study investigated the relationship between credit policy instruments and bank lending in Nigeria from 2000 to 2025. The objective of the study was to establish the effect of credit policy instruments such as the Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR), Liquidity Ratio (LR), and capital adequacy ratio on total loans of banks to the Nigerian economy. Ex post fact research design was adopted, and data was collected on the variables from the CBN Statistical bulletin and annual report of various years. Multiple regression was used in the analysis of the data. The regression model explains about 78% of the variation in total bank lending to Nigeria’s economy (R² = 0.782), indicating strong explanatory power. All three major credit policy instruments: Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR), and Liquidity Ratio (LR)exert significant negative effects on lending. The overall Introduction F-statistic of 11.34 is significant at the 5% level, leading to rejection of the null hypothesis and confirming that credit policy instruments significantly affect bank lending in Nigeria. The findings showed that credit policy instruments have negative and significant effects on bank lending, with the MPR, LR, CRR exhibiting varying degrees of effects on total credit supplied by the banks to the Nigerian economy. It was concluded that there is a significant relationship between credit policy and bank lending to the Nigerian economy. It was recommended that the CBN should adopt more of gradual introduction of policies that affect credit policies rather than aggressive moves, and that there is need for banks to increase their capital especially in the tier-one category to boost their credit policies that enhance their lending capacity to the Nigerian economy.