Abstract
This study was carried out with the aim of determining the impact of banks liquid assets regulation on real sector financing in Nigeria during the period 1980-2021. The study adopted ex-post facto research design which enabled the researcher use secondary data from CBN Statistical Bulletin, 2021 edition. Simple regression or Ordinary Least Square (OLS) regression was used to analyze data. The results showed a significant positive relationship between banks liquid assets regulation and agricultural sector financing; manufacturing sector financing, mining and quarrying as well as real estate and construction financing of the Nigerian economy during the period of study. The study recommended that regulatory authorities should sustain the current policies in the banking sector to further boost the financing of agriculture, manufacturing, mining and quarrying and real estate and construction among other recommendations. The implication of the study is that the Central Bank of Nigeria (CBN) as the regulatory authority should design policies and regulations that would boost the financing of the Nigerian economy for the overall benefit of the Nigerian economy
Keywords: Bank liquid assets, Regulation, Real sector, Financing
1.1 Background to the Study
Financial institutions play a critical role in the growth and development of any economy. They mobilize funds from surplus units (savers) and make these funds available to deficit units (borrowers or investors) for investment purposes. This describes the intermediation role of financial institutions especially Deposit Money Banks.
Financial institutions and commercial banks (deposit money banks) in particular, have come to be in possession of enormous financial resources and also wield a lot of influence in an economy through their intermediation role in the economy (Rose & Hudgins, 2010). If left unchecked or unregulated, these financial institutions can put the huge financial resources at their disposal to negative uses which would adversely affect the entire economy. Instances of bank fraud, theft and money laundering are common practices carried out through the financial system (and banking system in particular). This underscores the rationale for the regulation of financial system in general and the banking system in particular.
Rose & Hudgins (2010) have adduced several reasons why governments regulate financial firms to include the need to protect the public’s savings; to control the supply of money and credit in order to achieve a nation’s broad economic objectives (such as high employment and low inflation). They further maintained that the need to promote public confidence in the financial system, the need to avoid concentrating financial power in the hands of a few individuals and institutions as well as the need to help sectors of the economy that have special credit needs (such as housing, small business, and agriculture) are some of the other reasons why governments do undertake the regulation of financial institutions.
By regulating banks’ liquid assets (BLA) through liquidity regulation by the Central Bank of Nigeria (CBN), banks’ ability to finance the real sector (namely, agriculture, manufacturing,mining and quarrying among other sectors is hampered due to paucity of funds to finance activities in this sector. The resulting effect of this is job losses (as firms lay off workers due to cost cutting measures), loss of incomes due to lay-off, fall in demand and decline in productivity which ultimately leads to decline in gross domestic product (GDP).
The real sector of the Nigerian economy consists of four components, namely; agriculture, manufacturing, mining and quarrying, and real estate and construction. The real sector is the productive sector and centre (or hub) of economic activities. It follows therefore that adequate financing of activities in this sector can contribute immensely to gross domestic product (GDP), employment, incomes and prosperity.
IMPACT OF BANKS’ LIQUID ASSETS REGULATION ON REAL SECTOR FINANCING IN NIGERIA
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