Specification and estimation of demand and supply functions of commercial banks' loans and advances in Nigeria: 1961-1983

Abstract

This study attempts to analyse commercial banks' portfolio behaviour as well as the public's desire for credit. It does so by specifying and estimating the demand and supply functions of commercial banks' loans and advances in Nigeria Over the period 1961-1983. The purpose is to provide an insight into those factors that determine both the demand for and supply of loans and advances in Nigeria. It proceeded to specify and estimate equations taking due cognisance of the institutional setting of the Nigerian economy and the whole gamut of policy instruments that the monetary authority usually employs to control commercial banks' credit to the economy. The general conclusions of the study are that the factors which are conventionally considered to be relevant in the demand and supply functions of commercial banks' loans and advances turned out to be empirically unimportant during the period covered. The implication of this is that any policy measures designed to control the supply of loans through these factors will not yield the desired results. The conclusions also point to the existence of a host of other considerations that compel commercial banks to grant loans and induce borrowers to go for these loans. However, further research is obviously necessary to shed more light on these issues.