THE ROLE OF BANKING INSTITUTION IN THE DEVELOPMENT OF NIGERIA’S ECONOMY

This study empirically examines the role of banking institutions in Nigeria’s economic development. It focuses on four specific objectives: assessing the impact of market capitalization in the banking sector on Nigeria’s gross domestic product (GDP); analysing the influence of interest rates on GDP; evaluating the effect of monetary policy on GDP; and examining the relationship between financial deepening in the banking sector and GDP. The study utilizes aggregate data from all financial institutions listed on the Nigerian Stock Exchange and the Central Bank of Nigeria’s (CBN) annual statistical bulletin. Given the broad scope of the financial sector, the research specifically considers annual reports of banking institutions from 1995 to 2024. A unit root test was conducted to determine the integration order of the variables, ensuring their compatibility with the selected econometric framework. An Error Correction Model (ECM) was employed to capture short-term dynamics while maintaining long-term equilibrium. Descriptive statistics and various econometric tests including t-tests, R-squared, and F-tests were applied to analyse the data using E-Views 11. The findings reveal that financial development in Nigeria has a mixed impact on economic growth. While financial system deposits positively contribute to short-term growth, other aspects of financial development demonstrate limited significance. In the long run, financial inefficiencies and instability pose challenges to sustained economic growth. These results highlight the need for policymakers to enhance financial sector efficiency, strengthen monetary policy implementation, and promote financial inclusion to ensure that economic growth translates into broader economic benefits. Given that Nigeria’s financial sector remains underdeveloped compared to emerging economies, it is essential to strengthen financial institutions. This can be achieved by empowering deposit money and microfinance banks to serve as effective credit sources for both large and small businesses. Additionally, improving access to funding particularly for small and medium enterprises (SMEs) and encouraging financial institutions to adopt innovative lending models tailored to underserved sectors will further enhance economic development.