Deposit Money Banks and Productivity of the Manufacturing Sector in Nigeria

Abstract

This study investigates the relationship between deposit money banks (DMBs) and the productivity of Nigeria’s manufacturing sector, with emphasis on bank profitability, credit allocation, and prime lending rate. The objectives were to determine the effect of DMB profitability on manufacturing output, assess the influence of DMB credit, and evaluate the impact of prime lending rates. Annual time-series data covering 1998–2024 were analyzed using the Autoregressive Distributed Lag (ARDL) estimation technique, appropriate given the mixed integration orders revealed by unit root tests.The descriptive statistics indicated that manufacturing productivity averaged 9.19, DMB credit 9.97, profitability 11.15, and prime lending rate 2.69, reflecting moderate variability. Correlation analysis showed positive associations between profitability and productivity (r = 0.55) and between prime lending rate and productivity (r = 0.50). The ARDL results revealed that DMB credit had a strong and statistically significant positive effect on manufacturing productivity (short-run coefficient = 1.35, p < 0.01; long-run coefficient = 0.95, p < 0.01). Conversely, prime lending rate exerted a negative effect in lagged terms (coefficient = -1.05, p < 0.05), while DMB profitability had a positive but insignificant impact (coefficient = 0.08, p = 0.45). The bounds test confirmed cointegration (F-statistic = 5.66 > 5% upper bound of 4.35), establishing a long-run relationship among the variables. The implications of these findings are that credit availability from DMBs is a critical driver of manufacturing sector growth, while high lending rates constrain productivity by increasing financing costs. Bank profitability, though positive, does not directly translate into significant improvements in industrial output. The study concludes that expanding credit facilities at concessionary interest rates would enhance manufacturing productivity and contribute to Nigeria’s broader economic development.