NON-OIL SECTOR FINANCING AND THE PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study examines non-oil sector financing and its impact on banks financial performance. It polarizes on different sectoral credit provided by banks to sectors other than oil producing sectors. Hence, it was the aim of the study to investigate whether these financing provided by banks have any significant impact on its profitability. To this effect, the ARDL technique along with the Error correction model were used to capture the relationship between non-oil financing and banks profitability uses two profitability measures. Estimates obtained were found to be robust to both specifications and data manipulations. Specifically, the following findings were made; credit to agricultural sector was found to have significant positive short and long run relationship with return on asset, while no significant relationship was found between credit to agricultural sector and banks return on equity both in short and long run; a significant negative relationship was found between credit to manufacturing sector and banks return on asset both in the short and long-run, while no significant relationship was confirmed between credit to manufacturing sector and banks return on equity in the short and long run; credit to solid mineral sector was found to have a significant short and long run relationship with banks profitability as measured by return on asset, while no significant relationship was found between credit to solid minerals and banks return on equity both in short and long-run; and a significant relationship was found between credit to service sector and banks return on asset in the short and long run, while credit to service sector did not have a significant impact on banks return on equity. Based on these findings, it was recommended that: the firms in the agricultural sector being a priority sector in Nigeria should be given access to more credit since interest from credit facility is one of the major income channels for deposit money banks; banks encourage firms solid mineral sector by making for better access to financing facilities in which commissions or interest from these will create more wealth for the banks; and firms in the service sector has a direct impact on grass root individuals, hence these firms should also be prioritized as it concerns credit facilities from banks.