MICRO-PRUDENTIAL REGULATIONS AND BANK LENDING BEHAVIOUR

ABSTRACT

This study examine the effect of micro-prudential regulatory instruments on bank lending bahaviour in Nigeria. Spefically, the effect of capital adequaucy and liquidity requirements were considered. The cross-sectioal reserch design was engaged to examine the effect of microprudential regulation on bank lending behaviour for the period 2017 to 2022. Seven (7) banks namely Acess bank, First bank, UBA, Wema bank, Guranttee trust bank, Unity bank and Zenith bank were investigated. The descriptive statistics, covariance correlation analysis and panel unit root tests were engaged as preliminary investigation tools. The Genralized Method of Moments (GMM) was applied on dynamic model to examine the effect of micro-prudential regulation on bank lending behaviour. The analysis was done using E-view 9.0 econometric software. This study found that both capital adequaucy ratio and bank liquidity ratio negatively and significantly impact bank lending behaviour. On this backdrop, this study concludes micro-prudential regulation is a potent instrument influencing bank lending behaviour in Nigeria, and recommend that the regulatory authority, particularly Central Banks should exercise caution in the use of micro-prudential regulatory tools because of the averse effect it may have on bank credit creation.