Impact of Commercial Banks’ Credit on the Performance of Agriculture and Industrial Sector in Nigeria

Abstract

Nigeria’s agricultural and industrial sectors are vital to the country’s economic growth and development. However, their performance has been constrained by limited access to finance. This study, titled "Impact of Commercial Banks’ Credit on the Performance of the Agricultural and Industrial Sectors in Nigeria," investigates the relationship between commercial bank credit and sectoral performance using annual time series data from 2003 to 2023. The study employed the Ordinary Least Squares (OLS) technique for estimating the agricultural sector model and the Autoregressive Distributed Lag (ARDL) technique for the industrial sector model due to the nature of data stationarity. The study used AGR and LISO as proxies for agricultural and industrial sector performance, respectively, while commercial bank credit, exchange rate, inflation, and money supply were the explanatory variables. The study concludes that although commercial bank credit supports agricultural growth, its impact on industrial performance remains limited. It recommends that government and financial institutions improve credit allocation mechanisms, particularly to the industrial sector, and implement sector-specific policies to enhance productive credit utilisation for sustainable economic development. Findings reveal that commercial bank credit significantly improves agricultural performance, as a 1% increase in credit leads to a 0.20% rise in AGR (p < 0.05). Conversely, in the industrial sector, commercial bank credit shows a significant long-run effect but with a negative relationship to ISO. The study recommends that policymakers and financial institutions improve access to credit through reduced interest rates, flexible collateral conditions, and sector focused lending policies to enhance balanced sectoral growth.