ABSTRACT

This study examined the effects of policy on lending behaviour of commercial banks in Nigeria. To achieve this broad objective, the study adopted some key monetary policy instruments namely monetary policy rate, cash reserve ratio, liquidity ratio, exchange rate. inflation rate and treasury bills and investigated how they influence loans granted by commercial banks in Nigeria. In the course of ~his study. secondary data were collected from the Central Bank of Nigeria (CBN) Statistical Bulletin for the period 1981 to 2014. The study adopted unit root test in order to test for stationarity of the variables; Johansen cointegration test to ascertain the existence of long run equilibrium relationship • • among the variables; and error correlation model (ECM) to capture the short-run deviations arising from the long run analysis. Empirical findings revealed that there exists a long-run equilibrium relationship between monetary policy tools such as monetary policy rate (MPR), cash reserve ratio (CRR), liquidity ratio (LQR), treasury bill (TRBS), exchange rate (EXR) and inflation rate (INF) which were adopted in the study. Findings also showed that monetary policy rate has a significant effect on commercial banks' loans and advances in Nigeria. However, cash reserve ratio (CRR) was, shown to exert insignificant effect on commercial banks' loans and advances in Nigeria. The study recommended, among others. the Central Bank of Nigeria (CBN) should fashion out ways of keeping the monetary policy rate low as a way of encouraging the lending behaviours of commercial banks and this is achievable through single-digit monetary policy rate. Finally, the commercial banks tend to channel their funds towards alternative sources of income - earning activities and investments rather than granting loans and advances.