Bank Regulations and Private Sector Financial Deepening in Nigeria

Abstract

The study examines bank regulations and private sector financial deepening from 2001 to 2022. The study considers how capital adequacy, legal, liquidity, leverage requirements, and provisional policy affect credit to the private sector to Nigeria's GDP (CPS/GDP) ratio. Data are from the Central Bank of Nigeria (CBN) statistical database. The study employs unit root, Granger Causality, and the Autoregressive Distributed Lag (ARDL) framework at the 5% level. The unit root demonstrates that mixed integration (at level and first difference) necessitated the adoption of the ARDL Bound test, which revealed the presence of long-run effects. The ARDL long-run test indicates that capital adequacy and leverage requirements significantly decline CPS/GDP; liquidity requirement and provisional policy significantly promote financial CPS/GDP, and leverage requirement retard CPS/GDP but insignificantly. For Granger Causality, there is no causal movement from leverage and capital adequacy requirements to CPS/GDP and vice versa. Also, we notice one-way directional
movement from CPS/GDP to legal requirements, liquidity requirements, and provisional policies. The study affirms that bank regulations significantly affect financial deepening in Nigeria. Thus, it recommends among others that CBN consider reducing capital adequacy, leverage, and liquidity requirements to allow banks to create more credits for the private sector for profitable investments.