IMPACT OF BANK CREDIT ON THE PRIVATE SECTOR, BROAD MONEY SUPPLY, AND INTEREST RATE ON BANK PROFITABILITY IN NIGERIA

Abstract

The relationship between bank credit to the private sector, broad money supply, and interest rates significantly influences bank profitability, which is essential for financial stability and economic growth. A thorough literature review and empirical analysis of this research synthesizes findings from diverse global studies, emphasizing factors such as loan portfolio quality, interest rate spreads, and lending policies. This research analyzes the impact of these variables on bank profitability. This research employs empirical analysis and data from various banking institutions to elucidate the complex relationship between lending activities and financial performance in the banking sector. This study’s findings indicate that credit to the private sector and broad money supply exert a negative and insignificant influence on the return on assets of deposit money banks in Nigeria, whereas interest rates show a positive yet insignificant effect on the return on assets of these banks. An increase in credit to the private sector and a broad money supply will decrease the return on assets of deposit money banks in Nigeria. The negative impact may result from non-performing loans or bad debt; additionally, the supply of money may be allocated to unproductive investments, leading to a negative and insignificant effect on the return on assets of deposit money banks in Nigeria. The interest rate exhibited a positive but insignificant effect on return on assets of deposit money banks. The results indicate a notable relationship between bank credit and profitability, exhibiting differences across various banking systems and economic contexts. Comprehending these dynamics is essential for policymakers, regulators, and banking professionals to develop informed decisions regarding credit management strategies and financial stability