Impact of commercial bank credit on agricultural output in Nigeria

Abstract

This study looks at the impact of commercial bank credit on Nigerian agricultural output between 1981 and 2022. Data was obtained from Central Bank of Nigeria's statistical bulletin (2023), and analyzed using the bound test of cointegration and the Nonlinear Autoregressive Distributed Lag (NARDL) model. The results from the bound test confirm a long-run equilibrium relationship between the examined variables. The findings from the NARDL models reveal that Commercial Bank Credit to Agriculture (CBCA) significantly enhances agricultural output (AOP), while the Agricultural Credit Guarantee Scheme Fund (ACGSF) has a negative impact. Additionally, interest rates (INT) exhibit an insignificant effect on agricultural productivity. These results support the financial intermediation theory, affirming that commercial bank credit fosters agricultural production in both the short-run and long-run. Consequently, this study recommends that policymakers implement measures to incentivize banks to extend credit to the agricultural sector, such as reducing reserve requirements for agricultural loans and rewarding banks that meet specific lending thresholds. Furthermore, banks should expand their presence in rural areas to facilitate financial access for farmers, and the Agricultural Credit Guarantee Scheme Fund should be restructured to improve awareness and accessibility.