ANALYSIS OF THE MANAGEMENT OF LOANABLE FUNDS IN THE NIGERIAN COMMERCIAL BANKING INDUSTRY

Abstract

This study investigated the management of loanable funds in the Nigerian Deposit Money Banking Industry. The study identified the critical factors that are relevant in the management of loanable funds in the Nigerian Deposit Money Banking Industry; whose adherence to the identified critical factors can engender profitability within the sector. Secondary data were sourced from the financial statements of the twelve (12) purposively sampled deposit money banks from 2004 to 2014, Central Bank of Nigeria (CBN) quarterly/annual reports, statistical bulletins and monetary policy circulars. The model used is estimated using the management of loanable funds of the Nigerian Deposit Money Banks (MLF) proxied by Loans and Advances and other explanatory variables such as monetary policy (MP), government deficit financing (GDF), management corporate governance (MCG), quantum and quality of information (QI), economies of scale (E), risk (RK) and interest rate ( R ) for the period. A similar model using profitability proxied by Return on Asset (ROA) as dependent variable also combined with the above explanatory variables to establish possible relationship between the dependent and the explanatory (independent) variables. The study adopts econometric approach to test the degree of correlation between the variables by employing the multiple regression analysis of the Ordinary Least Square (OLS) method. Other error correction models employed are the Unit Root Test using the Augmented Dickey-Fuller (ADF) technique and the Johansen’s Multivariate Co-integration Test which shows the short run and long run relationship between the specified variables. The models hypotheses that the identified critical factors in the management of loanable funds are not relevant to the Nigerian economy and adherence to these critical factors in the management of loanable funds in the Nigerian Deposit Money Banking Industry do not engender profitability. The result of the regression analyses of R-squared 0.983071, an adjusted R-squared 0.864567 and a F- statistic of 8.295683 when the time series was differenced, yielded a better result than before differencing with R-squared 0.909384, adjusted R-squared 0.184454 and F-statistic 92.15146 which indicated that, there were functional relationships between the independent variables and management of loanable funds and are critical factors. Risk is least important of all because of its higher P-value of 0.56256 and 0.87554 in the MLF and ROA of tables 4.7 and 4.9 respectively. On the profitability test frontier, the R- squared 0.937550, an adjusted R-squared 0.500403 and F-statistic 2.144700 indicated there is correlation between the variables in the period of the analysis. This implies all the variables are critical to the management of loanable funds (MLF) and adherence to them engendered profitability in the Nigerian Deposit Money Banking Industry during the period. The study then suggests that Nigerian Deposit Money Banks should implement the battery of the Central Bank of Nigeria monetary policies promptly and also exploit the window of opportunity created by government deficit financing to shore up their loanable funds as these factors impact significantly on their lending behaviour and management. As a way of reversing the high impact inverse relationship (given the coefficient of dd_E -0.0476461 in table 4.7) between the management of loanable funds (MLF) in the Nigerian Banking Industry and the economies of scale variable (E), Nigerian Deposit Money Banks are advised to evolve ways of enhancing their productive, cost and profit efficiencies. Finally, good lending behaviour is premised on adherence to factors that impact on the management of loanable funds, deposit money banks need to do a lot to ensure this.