Oyebowale, Adeola Y.; Alga hi, Am S.
A icle
Banks, ma ke s, and economic g ow h in Nige ia
Cogen Economics & Finance
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Oyebowale, Adeola Y.; Alga hi, Am S. (2024) : Banks, ma ke s, and economic
g ow h in Nige ia, Cogen Economics & Finance, ISSN 2332-2039, Taylo & F ancis, Abingdon, Vol.
12, Iss. 1, pp. 1-17,
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Banks, ma ke s, and economic g ow h in Nige ia
Adeola Y. Oyebowale & Am S. Alga hi
To ci e his a icle: Adeola Y. Oyebowale & Am S. Alga hi (2024) Banks, ma ke s,
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GENERAL & APPLIED ECONOMICS | RESEARCH ARTICLE
Banks, ma ke s, and economic g ow h in Nige ia
Adeola Y. Oyebowale and Am S. Alga hi
She ield Business School, She ield Hallam Uni e si y, She ield, UK
ABSTRACT
This pape examines p oxies o money ma ke , capi al ma ke , and banks in Nige ia
using annual da a om 1961 o 2018. We employ au o eg essi e dis ibu ed lag
(ARDL) bounds es ing app oach, Wald es , and ec o e o co ec ion model (VECM)
G ange causali y echnique o analyse he da a. Ou indings show ha o al subsc ip-
ions o easu y bills has a posi i e and nega i e s a is ically signi ican ela ionship
wi h eal g oss domes ic p oduc (GDP) on he long- un and sho - un, espec i ely.
Hence, we a gue ha ma ke s and banks exhibi compe i i e in e ac ion in a ou o
ma ke s in Nige ia. Addi ionally, ou indings show a unidi ec ional sho - un causali y
om eal GDP o alue o ansac ions on he Nige ian S ock Exchange (NSE).
Fu he mo e, ou esul s suppo he exis ence o g ow h-led inance iew o demand-
ollowing hypo hesis in Nige ia, as we obse e a unidi ec ional long- un causali y om
eal GDP o bo h alue o money ma ke ins umen s ou s anding as a end-pe iod
and o al subsc ip ions o easu y bills.
IMPACT STATEMENT
This s udy in es iga es inance-g ow h nexus in Nige ia wi h a pa icula ocus on banks
and ma ke s. The indings o his esea ch e eal ha he ole o ma ke s on economic
g ow h is supe io o banks in Nige ia. Hence, banks and ma ke s a e compe i i e.
Addi ionally, ou empi ical indings p o ide e idence o suppo he exis ence o g ow h-
led inance iew in Nige ia. This esea ch explains he ele ance o he inancial sys em
on economic g ow h in Nige ia and p o ides co esponding insigh s o policy make s.
ARTICLE HISTORY
Recei ed 1 Janua y 2022
Re ised 20 May 2024
Accep ed 20 May 2024
KEYWORDS
Banks; ma ke s; economic
g ow h; g ow h-led inance;
Nige ia
REVIEWING EDITOR
Vassilios Papa assiliou,
Uni e si y College Dublin,
I eland
SUBJECTS
Economics; Econome ics;
Banking
JEL CLASSIFICATION
CODES
D53; E44; E52; E58; G21
1. In oduc ion
His o ically, he ela ionship be ween inance and economic g ow h commenced wi h he s udies o
Bageho (1873) and Schumpe e (1911), which emphasise on he ole o banks as inancial in e media ies
wi hin an economy. As such, Bageho (1873) and Schumpe e (1911) a e he i s p oponen s o inance-
led g ow h iew. Eme ging s udies o Goldsmi h (1969), McKinnon (1973), and Shaw (1973) suppo he
inance-led g ow h hypo hesis. Robinson (1952) challenges he inance-led g ow h hypo hesis and
a gues ha economic g ow h enhances inancial sec o de elopmen (g ow h-led inance). Thus, whe e
he e is economic g ow h, de elopmen o inancial sec o ollows due o highe demand o inancial
se ices- which gene a es he g ow h-led inance iew.
The con ibu ion o Pa ick (1966) ega ds inance-led g ow h and g ow h-led inance iews as sup-
ply-leading and demand- ollowing hypo hesis, espec i ely. Acco ding o Pa ick (1966), he in e ac ion
be ween hese wo hypo heses c ea es a eedback hypo hesis, wi h he signi ican ole o supply-leading
a ea ly s ages o economic g ow h and demand- ollowing aking o e as g ow h inc eases. Con a y o
hese iews, Lucas (1988) a gues ha he ole o inancial sys em on economic g ow h is ‘badly o e -
s essed’. Thus, he e is no causali y be ween inance and g ow h, which explains neu ali y hypo hesis.
Howe e , he deba e abou whe he banks o ma ke s exhibi g ea e in luence on economic g ow h
has led o ad ancemen in he li e a u e. On he bank-based pe spec i e, s udies, such as Fu e al.
(2018), Hao (2006), Ko kmaz (2015), Mamman and Hashim (2014), Odedokun (1996,1998) show a
CONTACT Adeola Y. Oyebowale [email p o ec ed] She ield Business School, She ield Hallam Uni e si y, She ield, UK
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2359302
h ps://doi.o g/10.1080/23322039.2024.2359302
posi i e ela ionship be ween banks and economic g ow h. Whe eas, s udies, such as Alexiou e al.
(2018), Liang and Reiche (2012), Mah an (2012), Xu (2016) e eal a nega i e ela ionship be ween banks
and economic g ow h.
On he ma ke -based pe spec i e, s udies, such as Fu a and Kim (2017), Ma ques e al. (2013), Nga e
e al. (2014), P adhan (2018) e eal a posi i e ela ionship be ween ma ke s and economic g ow h. The
s udy o Fu a and Kim (2017) u he shows nega i e ela ionship be ween ma ke s and economic g ow h
in non-Eu opean high income coun ies. Addi ionally, he wo k o Pan and Mish a (2018) e eals nega i e
ela ionship be ween ma ke s and economic g ow h in China. As such, he empi ical impac o banks and
ma ke s on economic g ow h emains inconclusi e which calls o inc easing schola ly a en ion.
In Nige ia, he inancial sys em comp ises o banks, inancial ma ke s, and o he inancial ins i u ions
which a e egula ed by he Banks and o he Financial Ins i u ions Ac 1991 (BOFIA) as amended in 1997,
1998, 1999, and 2002. Acco ding o CBN (2007), BOFIA commenced on 20 June 1991 a e i s enac men
by he Na ional Assembly o he Fede al Republic. The banking sec o in Nige ia is an essen ial pa o
he inancial sys em. The mo i a ion unde pinning his esea ch is he un esol ed empi ical deba e on
he ole o banks and ma ke s in he inancial sys em. Addi ionally, his pape p o ides a basis o in es i-
ga e he impac o money ma ke s and capi al ma ke s in Nige ia. In his ega d, his pape con ibu es
o exis ing s udies, pa icula ly in Nige ia whe e he e is li le empi ical e idence on he in e ac ion o
banks and ma ke s.
The no el y o his s udy is he conside a ion o money ma ke and capi al ma ke p oxies o ma ke -
based iew o obus ness, a he han he widely used s ock ma ke a iables in exis ing s udies ( o
ins ance, Ailemen & Unemhilin, 2017; Azam e al., 2016; Deyshapp iya, 2016; Fu a & Kim, 2017; Laza o
e al., 2016; Ma ques e al., 2013; Nga e e al., 2014; Nyasha & Odhiambo, 2017a,2017b; Pan & Mish a,
2018; P adhan, 2018). While he s udy o A ize e al. (2017), also conside s money ma ke a iables using
domes ic easu y bill a e in Nige ia, ou s udy is di e en as we conside he alue o money ma ke
ins umen s ou s anding as a end-pe iod and o al subsc ip ions o easu y bills as money ma ke
p oxies.
The es o his pape is o ganised as ollows. Sec ion 2 e iews he li e a u e on bank-based s. ma -
ke -based, and e olu ion o banks and ma ke s in Nige ia, Sec ion 3 desc ibes he empi ical model and
p o ides in o ma ion abou he da a, including desc ip i e s a is ics, Sec ion 4 p esen s and discusses
he empi ical esul s, and Sec ion 5 highligh s he inal conclusion wi h policy ecommenda ions.
2. Li e a u e e iew
2.1. Ma ke -based iew
The ma ke -based iew o di ec inance suppo s he ele ance o inancial ma ke s in he educ ion o
in insic ine iciencies in oduced by banks on economic g ow h (Lee, 2012). The s udy o A ow and
Deb eu (1954) which builds on he ma ke equilib ium as p oposed by Wal as’Law p o ides a ounda-
ion o suppo ma ke -based iew o e banks. As such, A ow and Deb eu (1954) a gues ha due o
p oblems associa ed wi h no ma i e o wel a e economics, Wal as’law ails o o e solu ions o ma ke
equilib ium. Consequen ly, he s udy o A ow and Deb eu (1954) ad oca es o he ele ance o ma ke -
based iew based on he assump ions ha inancial ma ke s a e comple e and pe ec , alloca ion o
esou ces wi hin an economy is Pa e o-op imal, which p o ides limi ed capaci y o inancial in e media-
ies o enhance socie al wel a e. Addi ionally, Fama (1980) asse s ha ma ke -based iew is ela ed o
Modigliani-Mille heo em which allows households o o se he ole o inancial in e media ies by c ea -
ing po olios.
2.2. Bank-based iew
The bank-based iew explains he ole o banks and o he inancial in e media ies in he ans e o
unds om sa ings su plus uni s o sa ings de ici uni s. In his ega d, he s udy o A ow and Deb eu
(1954) u he asse s ha banks and o he inancial in e media ies play a signi ican ole wi hin an econ-
omy due o he exis ence o impe ec ions in he inancial ma ke s. None heless, inancial in e media ies
2 A. Y. OYEBOWALE AND A. S. ALGARHI
become edundan when inancial ma ke s a e pe ec as sa e s and in es o s possess ele an in o ma-
ion in sea ch o unds. Acco ding o Schol ens and Wens een (2000) ha despi e he inc ease in global-
isa ion, inc ease in p ominen ole o public ma ke s, and e olu ion o in o ma ion, inancial
in e media ies ha e p o en o su i e wi hin inancial sys ems.
2.3. Bank-based s. ma ke -based
Unde he in luence o he seminal con ibu ions o Bageho (1873) and Schumpe e (1911), se e al he-
o e ical iews on banks and ma ke s ha e eme ged. Fo ins ance, di e se egula o y policies uniqueness
o inancial in e media ies (Klein, 1971); heo y o inancial in e media ion based on ‘delega ed moni o -
ing’(Diamond, 1984); mode n inancial in e media ion heo y based on h ee app oaches: ansac ion
cos s, in o ma ion p oblems, and egula o y ac o s (Schol ens & Wens een, 2000,2003); comple e and
pe ec inancial ma ke s assump ions (A ow & Deb eu, 1954), amongs o he s. To econcile he con o-
e sial ole o bank-based and ma ke -based on economic g ow h, he s udy o Schol ens and Wens een
(2003) pos ula es ha bank-based iew signi ican ly enhances economic g ow h a ea ly s ages o eco-
nomic de elopmen . Howe e , as economies en e ma u i y phase, he need o iche and mo e sophis-
ica ed isk managemen ins umen s o aising capi al on inancial ma ke s eme ges (Le ine, 2004).
The li e a u e o Song and Thako (2010) iden i ies h ee-dimensional in e ac ion be ween banks and
ma ke s: compe i ion, complemen a y, and co-e olu ion. Acco ding o Song and Thako (2010), he com-
pa a i e ad an ages o banks and ma ke s make hem compe e only when iewed in isola ion, no
when hey in e ac h ough secu i isa ion and bank capi al. Hence, complemen a y and co-e olu ion
dimensions a e depa u e om he compe i ion dimension whe e one g ows a he de imen o he
o he (Allen & Gale, 1999; Boo & Thako , 1997; Dewa ipon & Maskin, 1995) based on secu i isa ion and
bank capi al.
On he one hand, secu i isa ion c ea es a bene i low om e olu ion o banks o ma ke s as
imp o ed bank sc eening enhances c edi quali y o bo owe s aising capi al in he inancial ma ke s,
hus inc easing ma ke pa icipa ion o in es o s (Song & Thako , 2010). On he o he hand, bank capi al
c ea es a bene i low e olu ion o ma ke s o banks by educing he cos o bank equi y capi al, his
allows banks o hold mo e capi al and consequen ly educes a ioning o c edi ela ionship wi h bo -
owe s (Song & Thako , 2010). Thus, he s udy o Song and Thako (2010) ega ds he eedback loop
be ween banks and ma ke s based on secu i isa ion and bank capi al as co-e olu ion in e ac ion.
Fo complemen a y in e ac ion, he con ibu ions o Allen and Gale (2000) and Holms om and Ti ole
(1997) p o ide sui able explana ion. The model o Holms om and Ti ole (1997) conside s i ms and
banks as capi al cons ained. As such, i ms wi h adequa e equi y capi al can di ec ly access he ma ke ,
whe eas i ms wi h less capi al can bo ow pa ly om bo h banks and ma ke s. In his ega d, banks
equi e own capi al o moni o bo owe s and o enable bo owe s ob ain ma ke inance. Thus, he abil-
i y o bo owe s o access he ma ke s is in luenced by he p esence o banks in a ‘one-way complemen-
a ily’manne . The s udy o Allen and Gale (2000) accen ua es ha banks may complemen ma ke s
h ough p o ision o insu ance agains unan icipa ed con ingencies o indi iduals. Thus, e adica ing he
acquisi ion o expensi e in o ma ion by indi iduals and educing ma ke pa icipa ion cos s. As such,
‘one-way complemen a ily’a ises as banks p o ide insu ance o acili a e indi idual pa icipa ion in
ma ke s.
D awing om he li e a u e o Song and Thako (2010), he e ha e been a ious empi ical a en ion
on he in e ac ion be ween banks and ma ke s. Fo ins ance, he s udies o Al-Nasse (2015), A ize e al.
(2017), Babagana and Alom (2018), Beck (2010), Ma adeen and See anah (2015), Odhiambo (2014), Oso o
and Osano (2014), and Sahoo (2014) p o ide empi ical e idence o suppo complemen a y and co-
e ol ing in e ac ion be ween banks and ma ke s. On he o he hand, empi ical e idence on compe i ion
in e ac ion eme ge in s udies o Ma ques e al. (2013), Nyasha and Odhiambo (2016,2017a,2017b). In a
simila ein o causali y iews, empi ical e idence ega ding in e ac ion be ween banks and ma ke s on
economic g ow h emains inconclusi e.
In his line o easoning, his s udy a gues ha he con inuous con a y ou comes a e a ibu able o
he selec ion o di e en p oxies o e di e se ime span in a ious coun ies. Unde he in luence o his
a gumen , his s udy de i es a ge mane s ance o in es iga ion. This pape concu en ly con ibu es o
COGENT ECONOMICS & FINANCE 3
exis ing empi ical e idence on causali y iews on inance-g ow h nexus and in e ac ion o banks and
ma ke s in in luencing economic g ow h. Pa icula ly, his s udy builds on he s udies o A ize e al.
(2017) and Babagana and Alom (2018) in Nige ia.
2.4. Banking in Nige ia
Banking in Nige ia has unde gone di e en de elopmen s which ha e shaped he ope a ional ac i i ies
o banks in Nige ia. Such de elopmen s can be classi ied in o di e en phases: ee banking e a (1892–
1952), egula ion e a (1952–1986), de egula ion e a (1986–2004), consolida ion e a (2004–2009), and
pos -consolida ion e a (2009 o da e). Banking ope a ions in Nige ia began in he colonial adminis a ion
wi h he es ablishmen o A ican Banking Co po a ion (ABC) in 1892. In 1894, ABC was aken o e by
Bank o B i ish Wes A ica (BBWA) (now Fi s Bank o Nige ia Plc) and ano he o eign bank, Bank o
Nige ia ( o me ly Anglo-A ican Bank) was es ablished in 1899 by Royal Nige Company (Fi s Bank o
Nige ia [FBN], 2018).
In 1912, BBWA acqui ed Bank o Nige ia which was i s i s compe i o ; hence, BBWA emained he
dominan bank in Nige ia ill 1971 when Colonial Bank was es ablished. In 1925, Ba clays Bank DCO
(Dominion, Colonial and O e seas) was c ea ed esul ing om acquisi ion o Colonial Bank by Ba clays
Bank (Union Bank, 2020). In 1948, ano he o eign bank wi h he name; B i ish and F ench Bank Limi ed
(BFB) commenced ope a ions in Nige ia (now UBA Plc).
The ee banking e a was cha ac e ised by ee en y o banks in o he Nige ian banking sys em as
he e was nei he a banking egula o no legisla ion. As such, he o eign banks du ing his e a we e
egis e ed, headqua e ed, and con olled om London which made hem ac solely in he in e es o
o eign owne s a he han he Nige ian economy and i s ci izens (B ownb idge, 1996). In his ega d,
Nige ia es ablished i s i s indigenous bank in 1929 called Indus ial and Comme cial Bank wi h he aim
o ackle he dominance o o eign banks. Howe e , his bank liquida ed in 1930 esul ing om
embezzlemen , accoun ing incompe ence, mismanagemen (Newlyn & Rowan, 1954), and inadequa e
suppo om o eign banks.
Thus, Me can ile Bank was es ablished in 1931 and he bank ailed in 1936. The i s success ul indi-
genous bank in Nige ia was Na ional Bank o Nige ia, es ablished in 1933. Addi ionally, A ican
Con inen al Bank and he Nige ian Fa me s and Comme cial Bank we e es ablished in 1947. In line wi h
he ongoing discussion, M . G.D Pa on who was an o icial o he Bank o England (BoE) was appoin ed
o in es iga e he dwindling s a e o Nige ian indigenous banks in 1948. This in es iga ion led o he
in oduc ion o 1952 Nige ian Banking O dinance wi h he aim o ensu e smoo h comme cial banking
and o a oid es ablishmen o unp o i able banks in Nige ia.
The emana ion o Nige ian Banking O dinance in 1952 led o he commencemen o banking egula-
ion e a in Nige ia. As such, banks had o sa is y s ingen equi emen s be o e commencing ope a ion
in Nige ia. Fo ins ance, banks we e equi ed o ob ain ope a ing license be o e commencing banking
ac i i ies. Also, banks we e equi ed o ha e minimum nominal sha e capi al o £25,000 and £200,000
o indigenous and o eign banks, espec i ely, among o he s. Howe e , he iew o Ba os and Capo ale
(2012) asse s ha he egula ion appea ed o ha e an insigni ican impac on he conduc o banking
ac i i ies as he e was no egula o o ensu e compliance. Hence, he legisla ion o es ablish he Cen al
Bank o Nige ia (CBN) was p esen ed o he House o Rep esen a i es in Ma ch 1958 (CBN, 2018); he
CBN commenced ull ope a ions on 1 July 1959 wi h he esponsibili y o egula ing and o e seeing
banking ac i i ies in Nige ia.
As such, he sha e capi al o o eign banks was inc eased o £400,000 (Somoye, 2008), and he
Banking O dinance o 1952 wi h i s di e en amendmen s ans o med in o Banking Dec ee 1969 as a
cons i u ed amewo k o he CBN in egula ing banks (CBN, 2018). Acco ding o Uche (2000), bank
egula ion du ing his pe iod was suppo ed by go e nmen suppo which p e en ed banks om ail-
ing; hus, ac i i ies in he banking sec o we e mode a ely s eady. Following he asse ion o Uche
(2000), his s udy a i ms ha such go e nmen suppo was aimed a p e en ing sys emic isk in he
Nige ian banking indus y as mo e indigenous banks we e being in oduced.
The Nige ian banking indus y expe ienced a new phase wi h he in oduc ion o S uc u al
Adjus men P og amme (SAP), a p og amme imposed on de eloping coun ies by he Wo ld Bank and
4 A. Y. OYEBOWALE AND A. S. ALGARHI
he In e na ional Mone a y Fund (IMF) in 1986. The emana ion o SAP was expe ienced unde he mili-
a y egime o Gene al Ib ahim Babangida wi h some o he bank con ol measu es elaxed, such as
in e es a e egula ion, en y es ic ions, and sec o al alloca ion o c edi quo as (Ba os & Capo ale,
2012). As such, he e was inc ease in numbe o banks om 42 in 1986 o 120 in 1992, wi hou a co e-
sponding inc ease in supe iso y and egula o y mechanisms (Oyejide, 1993) which led o disin e medi-
a ion and sys emic ailu e (Ba os & Capo ale, 2012).
In esponse o he wobbly s a e o he Nige ian banking sys em du ing his pe iod, p uden ial meas-
u es we e in oduced by he go e nmen in 1991 h ough Banking and O he Financial Ins i u ions
Dec ee (BOFID), and issuance o licenses o new banks was pu o a hal (Ba os & Capo ale, 2012;
Hesse, 2007). Consequen ly, he numbe o banks in Nige ia educed o 89 by 2004 which we e cha ac-
e ised by poo asse quali y, low capi al base, insol ency, eeble co po a e go e nance, and o e de-
pendence on o eign exchange ading and public sec o deposi s (Soludo, 2006).
Following he de e io a ing s a e o Nige ian banks in 2004, he mos ema kable banking phase in
he coun y eme ged. The consolida ion e a commenced wi h he inc ease o minimum capi al base o
banks om N2 billion o N25 billion by he end o Decembe 2005. This was announced in July 2004 as
pa o he ‘13-poin Re o m Agenda’aimed o eposi ion he CBN and he Nige ian inancial sys em o
he 21s cen u y (Ailemen, 2010). As such, only banks ha me he capi al base equi emen we e issued
banking license, me ge s and acquisi ions occu ed among banks, while some banks liquida ed. Thus,
he banking indus y eco ded only wen y- i e (25) banks a e he capi al base deadline om 89 be o e
he consolida ion.
Acco ding o Sanusi (2010), he numbe o banks la e educed o wen y- ou (24) h ough ma ke -
induced me ge and acquisi ion. Howe e , he e up ion o he inancial c isis in 2007/2008 necessi a ed
ano he phase in he Nige ian banking indus y in 2009. In line wi h he ongoing discussion, his s udy
a gues ha he e ec o he inancial c isis would ha e con ibu ed g a e consequences on he Nige ian
banking indus y wi h he ini ial capi al base equi emen o N2 billion be o e consolida ion. In his
ega d, accessing go e nmen suppo o p e en sys emic isk would ha e been di icul as he go e n-
men du ing his pe iod elied hea ily on ese es o e i e he economy. Hence, he minimum capi al
base o N25 billion main ained by su i ing banks du ing his pe iod helped o educe he e ec o
inancial c isis on banks in Nige ia.
The pos -consolida ion phase commenced in June 2009 wi h he CBN in oducing ‘The P ojec Alpha
Ini ia i e’aimed o e o m he Nige ian banking indus y and he inancial sys em a e he 2007/2008
inancial c isis. This commenced wi h diagnosis o he emaining wen y- ou (24) banks using a h ee
b anched app oach. Acco ding o Sanusi (2010), he i s app oach in ol ed a join examina ion con-
duc ed by Nige ian Deposi Insu ance Co po a ion (NDIC) and CBN, he in es iga ion e ealed ha nine
(9) ou o he wen y- ou (24) banks we e in g oss uns able si ua ions. The second app oach in ol ed a
diagnos ic audi by independen consul an s, he ou come o his u he showed ha he nine (9) banks
had subs an ial nega i e asse alue signi ying echnical insol ency. Acco dingly, he CBN in collabo -
a ion wi h NDIC and Fede al Minis y o Finance injec ed N620 billion in o he nine (9) dis essed banks.
Addi ionally, he Chie Execu i e O ice s and Boa d o Di ec o s o eigh (8) ou o he nine (9) banks
we e eplaced wi h p o icien manage s o acili a e eco e y (Sanusi, 2010). The hi d app oach equi ed
a de ailed and independen managemen accoun audi o he eigh (8) banks wi h new managemen .
Consequen ly, he new manage s emba ked on some ac ions wi h guidance o he CBN o imp o e
ope a ions and anspa ency. Fo ins ance, educ ion in cos o income a io, imp o emen o non-pe -
o ming loans h ough loan a ios, de-le e aging and de- isking balance shee s, and liquidi y manage-
men . In line wi h he ongoing discussion, ‘The P ojec Alpha Ini ia i e’o he CBN was based on ou
pilla s: enhancing he quali y o banks h ough isk-based supe ision, es ablishing inancial s abili y,
enabling heal hy inancial sec o e olu ion, and ensu ing con ibu ion o he inancial sec o on he
economy.
Wi h he con inua ion o he pos -consolida ion e a in Nige ia, he banking sec o ecen ly expe i-
enced a new e en as he licence o Skye Bank was e oked on 21 Sep embe 2018. Following he
examina ion and o ensic audi o Skye Bank by he CBN, he ou come e ealed ha Skye Bank equi ed
u gen ecapi alisa ion. Thus, he CBN in consul a ion wi h he Nige ia Deposi Insu ance Co po a ion
(NDIC) es ablished a b idge bank, Pola is Bank o ake-o e he ac i i ies o Skye Bank e ec i e om 24
COGENT ECONOMICS & FINANCE 5
Sep embe 2018. The i s in e en ion in his s a egy was he injec ion o N786 billion in o Pola is Bank
by he Asse Managemen Company o Nige ia (AMCON). As o Janua y 2022, he e a e wen y- wo (22)
comme cial banks ope a ing in Nige ia as shown in no e 1 (CBN, 2022).
2.5. Capi al ma ke s in Nige ia
The his o y o inancial ma ke s in Nige ia can be aced back o he pe iod o B i ish colony. Du ing his
pe iod, unds de i ed om he p ima y sec o (ag icul u e, solid mine al mining and p oduce ma ke ing)
we e insu icien o mee inc easing inancial obliga ions equi ed o un local adminis a ion. As such,
he e was a need o expand e enue base by aising unds om he public sec o which necessi a ed
he emana ion o Nige ian capi al ma ke . Pa icula ly, he colonial go e nmen equi ed addi ional unds
o implemen i s 10-yea in as uc u al de elopmen and long- e m capi al p ojec s. Consequen ly, he e
was loa a ion o £300,000 bonds by he colonial go e nmen in 1946 which ga e bi h o capi al ma ke
in Nige ia.
On 15 Sep embe 1960, he Lagos S ock Exchange was inco po a ed as a p i a e limi ed liabili y by
gua an ee unde he p o isions o he Lagos S ock Exchange Ac 1960 (Esosa, 2007) o enhance ading
on he Nige ian capi al ma ke . In o mal ope a ions commenced on 5 June 1961 wi h 19 lis ed secu i ies
which comp ised o 10 indus ial loans, six Go e nmen bonds, and h ee equi ies. Howe e , o mal
ope a ions la e began on 25 Augus 1961. In 1977, he Lagos S ock Exchange was changed o Nige ia
S ock Exchange (NSE) wi h se e al b anches ac oss he coun y. The NSE is licensed unde he
In es men s and Secu i ies Ac (ISA) and is egula ed by Secu i ies and Exchange Commission (SEC) o
Nige ia.
The NSE comp ises o capi al ma ke s whe e long- e m secu i ies a e aded. In e media ies in he
Nige ian capi al ma ke s comp ises o co po a e bodies and indi iduals who acili a e ading o secu -
i ies. Acco ding o NSE (2020), ca ego ies o secu i ies lis ed on NSE include equi ies, exchange aded
p oduc s, bonds and memo andum lis ings. As a 2020Q1, 359 secu i ies we e lis ed on he NSE wi h
o al ma ke capi aliza ion o N 25,513,173,485,365.50 (NSE, 2020). Addi ionally, as a 2020Q1, 59.82%
domes ic ansac ions occu ed on he NSE, while o eign ansac ions we e 40.18%.
2.6. Money ma ke s in Nige ia
A p e-independence, he inancial sys em in Nige ia was mos ly owned by o eigne s due o he lack o
s uc u ed domes ic ma ke s in Nige ia. Du ing his pe iod, he e was exis ence o a ma ke linked o he
London money ma ke o he ans e o unds be ween London and Nige ia o inance expo o a m
p oduce (A iemo, 2013). As such, he e was a need o domicile unds a elling o Nige ia o po en ial
in es men and economic de elopmen . Consequen ly, he Nige ian money ma ke was o icially es ab-
lished in Ap il 1960 wi h he issuance o he i s CBN T easu y bill. In 1962, he CBN designa ed he Call
Money Fund Ma ke o allow pa icipa ing ins i u ions o keep su plus balances wi h he CBN empo a -
ily. These idle balances we e u he in es ed in sho - e m money ma ke ins umen s. Thus, he scheme
p o ided in es men oppo uni y o in es o s and se ed as a means o abso bing excess liquidi y
p essu es in he money ma ke (A iemo, 2013).
The CBN u he in oduced he Finance Bill Scheme in 1962 as a sou ce o inance o ma ke ing
boa ds o imp o e expo o ag icul u al p oduce. In 1968, T easu y Ce i ica es we e issued o he i s
ime o help b idge he loopholes in iscal ope a ions o he go e nmen as sho - o-medium e m
secu i ies. Be ween 1974 and 1976, o he money ma ke ins umen s, such as Ce i ica es o Deposi s
(CDs), Banke s Uni Fund (BUF), and Special Deposi s wi h he CBN we e in oduced. The inc easing
impo ance o money ma ke s as a seconda y ma ke in Nige ia and i s signi icance in he conduc o
mone a y policy was appa en in 1993, ollowing implemen a ion o Open Ma ke Ope a ions (OMO)
using go e nmen secu i ies.
As o Janua y 2022, he egula o y and supe iso y bodies on he Nige ian money ma ke include
CBN, NDIC, and Fede al Minis y o Finance. Ins i u ions in he Nige ian money ma ke include Deb
Managemen O ice (DMO), Deposi Money Banks (DMBs), and discoun houses (A iemo, 2013).
Addi ionally, money ma ke ins umen s in Nige ia include T easu y Bills (TBs), T easu y Ce i ica e (TC),
6 A. Y. OYEBOWALE AND A. S. ALGARHI
Comme cial Pape s (CP), o Comme cial Bills and Ce i ica es o Deposi s (CD) (CBN, 2013). Fu he mo e,
he Nige ian money ma ke consis s o an in e -bank ma ke as a sub-se o he ma ke whe e banks
and discoun houses ade in unsecu ed money.
3. Empi ical model and da a
The empi ical model o his s udy ollows he simpli ied heo e ical amewo k o Bageho (1873) and
Schumpe e (1911) o cap u e he ole o banks in enhancing economic g ow h, and A ow and Deb eu
(1954) o cap u e he ole o ma ke s in os e ing economic g ow h as exp essed in Equa ion (1):
GDP ¼ ðBANKS ,MARKETS Þ(1)
whe e GDP
deno es he eal g oss domes ic p oduc , BANKS
is bank-based p oxies, MARKETS
is ma ke -
based p oxies and is he ime pe iod.
Based on heo e ical unde pinning, his s udy in ol es i e a iables- GDP
is he eal g oss domes ic
p oduc , MNM
is he alue o money ma ke ins umen s ou s anding as a end-pe iod, TRA
is he alue
o ansac ions a he Nige ian S ock Exchange, TBL
is he o al subsc ip ions o easu y bills and agg e-
ga e loans and LOA
ad ances o comme cial banks in Nige ia. All he a iables a e measu ed in million,
Nige ian Nai a (N Million). Thus, he empi ical model o his s udy is exp essed in Equa ion (2) as:
GDP ¼ ðMNM ,TRA ,TBL ,LOA Þ(2)
Con e ing Equa ion (2) in o an econome ic model and aking logs, we ha e Equa ion (3):
ln GDP ¼b0þb1ln MNM þb2InTRA þb3InTBL þb4InLOA þl (3)
whe e he pa ame e b0is he in e cep , he pa ame e s b1,
….
,b4a e he slope coe icien s o he
explana o y a iables and lis he e o e m. We use annual da a o GDP om he Wo ld Bank da a-
base, and da a o all he explana o y a iables om he Annual S a is ical Bulle ins o he Cen al Bank
o Nige ia (CBN). The da a span he pe iod 1961–2018 wi h 58 obse a ions.
Table 1 epo s key summa y s a is ics o he a iables unde in es iga ion in ou model. The mean
and he median alues o all se ies a e close oge he , indica ing symme ical dis ibu ions. The alues o
skewness and ku osis a e consis en wi h he small di e ences be ween he mean and median alues.
On he one hand, al hough skewness has posi i e and nega i e alues o all a iables, hese alues a e
close o ze o. On he o he hand, he ku osis o all da a se ies is pla yku ic, <3.
Dis ibu ion displays ewe and less ex eme ou lie s han does he no mal dis ibu ion. In addi ion,
he no mali y es epo ed is based on Doo nik and Hansen (2008), ins ead o he commonly used
Ja que-Be a (JB) es which is only app op ia e in da a wi h la ge numbe o obse a ions. Doo nik and
Hansen’s(2008) omnibus es o no mali y adjus s and con ols well o sample size as low as 10 obse -
a ions. No mali y es indica es ha no mali y is no ejec ed a 1% le el o all a iables, excep
o lnTRA:
Table 1. Desc ip i e s a is ics.
lnGDP lnMNM lnTRA lnTBL lnLOA
Mean 30.761 10.685 7.694 11.005 10.719
Median 30.620 10.876 6.204 11.394 10.083
Minimum 29.801 3.589 0.419 4.663 4.788
Maximum 31.887 16.312 14.670 16.046 16.577
S d.De 0.597 3.749 4.197 3.431 3.832
Skewness 0.478 −0.146 0.296 −0.074 0.077
Ku osis 2.357 1.806 1.715 1.820 1.3134
No mali y es 6.077 6.389 11.714 5.4838.078
(p-Value) (0.0479) (0.0410) (0.0029) (0.0645) (0.0176)
No e. ,, and deno e ha no mali y is ejec ed a 1, 5, and 10% le els, espec i ely.
Sou ce: Au ho s’calcula ions.
COGENT ECONOMICS & FINANCE 7
ex end ou empi ical model o o he coun ies using panel da a o examine he in e ac ion be ween
banks and ma ke s on economic g ow h among coun ies in a selec ed egion.
No e
1. The comme cial banks in Nige ia as a Janua y 2022 a e Access Bank Plc, Ci ibank Nige ia Limi ed, Ecobank Nige ia
Plc, Fideli y Bank Plc, Fi s Bank Nige ia Limi ed, Fi s Ci y Monumen Bank Plc, Globus Bank Limi ed, Gua an y T us
Bank Plc, He i age Banking Company L d, Key S one Bank, Pola is Bank, P o idus Bank, S anbic IBTC Bank L d,
S anda d Cha e ed Bank Nige ia L d, S e ling Bank Plc, SunT us Bank Nige ia Limi ed, Ti an T us Bank L d, Union
Bank o Nige ia Plc, Uni ed Bank o A ica Plc, Uni y Bank Plc, Wema Bank Plc, Zeni h Bank Plc (CBN, 2022).
Acknowledgemen s
The au ho s a e solely esponsible o commen s, sugges ions, and iews in his pape .
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he au ho (s).
Funding
The au ho s ecei ed no inancial suppo o he esea ch.
Abou he au ho s
D . Adeola Y. Oyebowale is a Senio Lec u e in Finance and Risk Managemen a She ield Business School,
She ield Hallam Uni e si y, UK. His esea ch in e es s include ime se ies analysis, inance-g ow h nexus, co po a e
inance, inancial egula ion, and po olio analysis.
D . Am S. Alga hi is a Senio Lec u e in Economics a She ield Business School, She ield Hallam Uni e si y, UK. His
esea ch in e es s a e la gely concen a ed on applied econome ics, ime se ies analysis, and mac oeconomics. Am
specialises in inancial econome ics and ime se ies analysis, economic g ow h, economic policy, in e na ional eco-
nomics, en i onmen al economics, and go e nance.
ORCID
Adeola Y. Oyebowale h p://o cid.o g/0000-0002-0555-8519
Am S. Alga hi h p://o cid.o g/0000-0003-2281-3021
Da a a ailabili y s a emen
The da a o his s udy a e a ailable on eques om he au ho s.
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