The Effect of Selected Financial Indicators on Formal Agricultural Credit Supply in Nigeria.

Author(s)

Bassey, Nsikan Edet , Ibok, Otu William , Amba, Esu-Amba Antakikam ,

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Volume 3 - September 2014 (09)

Abstract

This study examines the effect of selected financial indicators on formal agricultural credit supply in Nigeria. Time series data obtained from CBN covering the period 1970-2011 were employed in the study. Data were analyzed using Cointegration and error correction model. The data was first examine for unit roots using the Augmented Dicky Fuller (ADF) test, result which shows that only loan to deposit ratio was stationary at level while the other variables were stationary at first difference. Findings further revealed that loan to deposit ratio, loan to other sectors and previous volume of loan to other sectors all exerted significant negative impact on formal agricultural credit supply in Nigeria. Surprisingly, lending rate carried the expected negative sign but fail to explain the variation in formal agricultural credit supply during the period under investigation. The study advocated for appropriate short and long-run financial policies that would reduce the volume of loan given to other sector. This can be achieved by making agriculture a priority sector in financial Institution’s loan disbursement and funding schedule. If possible, the mandatory Commercial bank sectoral credit allocation to agriculture should be increased and adequate monitoring carried out to ensure that bank’s disbursement targets are met in line with CBN’s prescribed conditions. Also, policies that would reduce the loan to deposit ratio of banks should be pursued. Such policies should be directed towards increasing the interest rate on savings deposit. This would increase the volume of bank deposit and savings which would, invariably, enhanced their liquidity position.

Keywords

Credit supply, loan to deposit ratio, formal credit, agricultural sector

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