Abstract:
This study examined the effect of inflation rate, liquidity ratio, loan to deposit ratio and prime lending rate on banks’
credit to manufacturing sector in Nigeria. Annual time series data spanning from 1986 to 2021 sourced mainly from
CBN Statistical Bulletin was used. The study employed Augmented Dickey-Fuller test and Autoregressive Distributed
Lag estimation techniques. Findings revealed that inflation and prime lending rates have positive but insignificant effect
on banks’ credit in the long run. Also, liquidity ratio has positive significant effect in the short run, but affects banks’
credit negatively in the long run. Moreover, results showed short run causality from explanatory variables to deposit
money banks’ credit. The study concluded that inflation rate, liquidity ratio, loan to deposit ratio and prime lending rate
are critical factors that influence banks’ credit to manufacturing sectors. Therefore, it is recommended that the Central
Bank of Nigeria should formulate favorable monetary and macroeconomic policies in order to encourage banks’ lending
to manufacturing firms in Nigeria thereby enhancing economic growth.
