Title: EFFECT OF CASH RESERVE RATIO AND LIQUIDITY RATIO ON BANK LENDING TO THE PRIVATE SECTOR IN NIGERIA
Authors:
Prof T. A Udenwa And Chukwu Elvis Chibiko Emmanuel
Abstract:
The study examines the effect of Cash reserve ratio and liquidity ratioon bank lending in Nigeria from 2008 to 2024. The dependent variable was proxied by credit to private sector, while the independent variable was proxied by cash reserve ratio and liquidity ratio. Using Ex post facto research design, quarterly time series data were extracted from the Central Bank of Nigeria’s statistical bulletin 2024 and VAR estimation test was used based on the unit root test result. With a long run cointegration significant effect, the VAR result showed that cash reserve ratiohad a negative significant effect on credit to private sector in Nigeria, while liquidity ratio had insignificant effect on credit to private sector in Nigeria. The study recommends that since CBN should reduce CRR ratio of 50% because this has imposed excessive constraints on lending. Complementary measures, such as targeted credit facilities or sector-specific incentives, can also help mitigate the contractionary impact on productive sectors.CBN could also introduce more flexible liquidity requirements or develop dynamic liquidity frameworks that respond to banking sector conditions to promote credit expansion.
Keywords: Cash reserve ratio, Liquidity ratio, Bank lending, Credit to Private Sector, Nigeria.
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