Bank-Based Financial Architecture and Economic Performance: Evidence From Nigeria
Abstract
This study examined the correlation between bank-based financial architecture and economic performance in Nigeria utilising quarterly data from 2010:Q1 to 2022:Q4. The study specifically analysed the impact of the cash reserve ratio, monetary policy rate, stated lending rate, stated deposit rate, capital adequacy ratio, leverage ratio, and net stable funding ratio on the financial inter-relation ratio in Nigeria. The research employed descriptive statistics, unit root tests, generalised linear models, Johansen co-integration tests, VEC-Granger causality, and vector error correction methods to analyse data sourced from the Central Bank of Nigeria and the World Bank Development Indicators Statistics bulletin across various editions at a 5% significance level. The investigation indicated that all variables were integrated at the first difference, necessitating the Johansen co-integration test to confirm the existence of a long-run link among the variables. The findings indicated that bank-based financial architecture substantially affects Nigeria's economic performance. In both the short and long term, all measures of financial architecture collectively contributed to significant performance in the overall economy. The study revealed that the integration of domestic and international financial frameworks significantly enhances the overall performance of Nigeria's economy. Consequently, the study recommended that alleviating the stringent regulatory requirements on capital adequacy, particularly with the buffer phenomenon, should be a significant policy focus. Capital funds can be liberated to fulfil their purpose, and if this is achieved, they will function as intended. If this is untenable, a cap should be imposed not to surpass its recorded mean of 13.97% due to the very adverse impacts it produces.
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