TITLE:               

Banking Sector Stability Effect on Economic Growth in Nigeria

AUTHORS:     

Inim Victor Edet,  James Agama Emiesefia, Saji George, Emomotimi John Agama

DOI:  10.5110/77. 1106               Page:   06-20            Vol: 19    Issue: 02   Year: 2024

ABSTRACT

This study assesses the effect of banking sector stability on economic growth in Nigeria using the dynamic ARDL bounds approach. The study covers the period from 2005-2022 and utilises indicators such as the banking stability index, return on assets, financial depth, interest rate, and real GDP as proxies for economic growth. The Bounds test results indicated the presence of a long-run nexus among the study variables. A unit increase in bank stability, financial depth, and bank performance has a positive and statistically significant effect on economic growth. The CointEq(-1) of -0.71 indicates that the 71% divergence caused by banking sector instability converges back to the long-run equilibrium with the first quarter of the current year. The findings reveal that the banking sector stability spurs economic growth in Nigeria. High interest negatively influences economic activities, and moderate interest is recommended to foster economic growth. The lending to the real sector falls below the optimal level. The study recommends regulatory improvements in both micro- and macro-prudential approaches. It also advocates the strict implementation of the Basel Accord to enhance Nigerian banks’ international competitiveness.

Keywords:

Bank stability, Nigeria, performance, economic growth

Received: 05 January 2024

Accepted: 22 January 2024

Published: 07 February 2024