Interest Rate Deregulation, Bank Lending & Deposits : An Analysis of Nigerian Bank Data

This paper examines the effect of interest rate deregulation; as a monetary policy tool on bank lending to customers and deposits by customers in Nigeria for the period of 2002 to 2010. VECM and VAR models are employed to achieve the objectives of this paper. One of the assumptions of classical econometric theory is that the underlying data processes are stationary. Stationarity of variables is achieved using appropriate econometric techniques. The result reveals long-run association of bank lending variables as well as short-run relationship between them. The result shows that deregulation of interest rate impacts positively on bank lending. There is no long-run relationship between bank deposit variables, but there exist short run relationship between these variables. Both unidirectional and bidirectional casual links among the variables are identified.