Effect of Interest Rate Deregulation on Commercial Banks Lending Operations in Nigeria (1970-2020)

Abstract

This study examines the effect of interest rate deregulation on commercial banks’ lending operations in Nigeria from 1970 to 2020. The study used annual data fron CBN and applied Johansen co-integration, error correction model, and chow test. The result for the Johansen co-integration test shows that there is a long-run relationship between interest rate and commercial bank loans and advances in Nigeria during the period of analysis, while the chow test analysis shows that the null hypothesis is rejected, and this suggests that interest rate has no significant effect on commercial banks’ loans and advances in Nigeria during regulated and deregulated periods. The study recommends that commercial banks should be given low-interest loans by the Central Bank of Nigeria (CBN) through the use of essential monetary policy tools, including the monetary policy rate (MPR) and therefore Commercial banks in Nigeria will have to pay low interest rates on loans as a result of this.