This study tests four regression models to examine the effects of selected bank management ratios on rural lending and small business finance in Nigeria. Published data were generated from the Central Bank of Nigeria (CBN) Statistical Bulletin for the period 1992-2007, and analyzed with the Software Package for Social Sciences (SPSS). It was found that a critical gap in bank intermediation still exists in the Nigerian rural and SME sectors. A significantly positive relationship exists between rural loan-todeposit ratio (RLTDR) and aggregate loan-to-deposit ratio (LTDR) at the 5% level. However, when RLTDR is used as the explanatory variable, we should expect LTDR to rise significantly, as RLTDR declines and vice versa. The coefficient of determination (R2) shows that 84.02% of the variation in RLTDR is accounted for by bank management variables (Liquidity Ratio -LR, Cash Reserve Ratio -CRR & Loan-to-Deposit Ratio LTDR). Furthermore, the bank management variables (LR, CRR & LTDR) varied negatively with the ratio of loans to SMEs (RLSMEs) at the 5% level of significance. Nearly 75% of the variations in the ratio of loans to SMEs is accounted for by the bank management explanatory variables. Overall, the results suggest that rural bank management expanded aggregate credit in such a manner that constrained their liquidity profiles, particularly from year 2007. The excess liquidity in the banking system between 1992-2007 did not improve the flow of credit to SMEs in Nigeria. Consequently, the banks have failed in their social role of financing the entrepreneur-innovator by restricting the spread of fiat money contrary to the expectations of the Keynes-Schumpeter model. There is also no evidence to show that the banks are dealing significantly with the problem of information asymmetries through improved relationship lending to the SMEs in Nigeria. Monetary policy should therefore focus on compliance with prudential standards, restoring the mandatory credit allocation regime to rural & SME sectors and deepening the rural financial system.
This study tests four regression models to examine the effects of selected bank management ratios on rural lending and small business finance in Nigeria. Published data were generated from the Central Bank of Nigeria (CBN) Statistical Bulletin for the period 1992-2007, and analyzed with the Software Package for Social Sciences (SPSS). It was found that a critical gap in bank intermediation still exists in the Nigerian rural and SME sectors. A significantly positive relationship exists between rural loan-todeposit ratio (RLTDR) and aggregate loan-to-deposit ratio (LTDR) at the 5% level. However, when RLTDR is used as the explanatory variable, we should expect LTDR to rise significantly, as RLTDR declines and vice versa. The coefficient of determination (R2) shows that 84.02% of the variation in RLTDR is accounted for by bank management variables (Liquidity Ratio - LR, Cash Reserve Ratio – CRR & Loan-to- Deposit Ratio LTDR). Furthermore, the bank management variables (LR, CRR & LTDR) varied negatively with the ratio of loans to SMEs (RLSMEs) at the 5% level of significance. Nearly 75% of the variations in the ratio of loans to SMEs is accounted for by the bank management explanatory variables. Overall, the results suggest that rural bank management expanded aggregate credit in such a manner that constrained their liquidity profiles, particularly from year 2007. The excess liquidity in the banking system between 1992-2007 did not improve the flow of credit to SMEs in Nigeria. Consequently, the banks have failed in their social role of financing the entrepreneur-innovator by restricting the spread of fiat money contrary to the expectations of the Keynes-Schumpeter model. There is also no evidence to show that the banks are dealing significantly with the problem of information asymmetries through improved relationship lending to the SMEs in Nigeria. Monetary policy should therefore focus on compliance with prudential standards, restoring the mandatory credit allocation