The Impact of Macroeconomic Instability on the Banking Sector

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Journal of Money, Investment and Banking ISSN 1450-288X Issue 7 (2009) © EuroJournals Publishing, Inc. 2009

The Impact of Macroeconomic Instability on the Banking Sector Lending Behaviour in Nigeria
Somoye, Russell Olukayode Christopher Associate Professor, Department of Banking and Finance Olabisi Onabanjo University, Ago-Iwoye P.O Box 1140 Ijebu Ode , Nigeria E-mail: Tel: + 234-8033335688 Ilo, Bamidele M Department of Banking and Finance, Olabisi Onabanjo University PMB 2002, Ago- Iwoye E-mail: Tel: + 234-80560085567 Abstract This study aims primarily at investigating the impact of macroeconomic instability on banking sector lending behaviour in
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For instance, the inflation rate rose from an annual average of 25.96 per cent between 1986 to 1990 to an average of 48.92 per cent from 1990 to 1995 while the economy grew in real terms at an average of 5.99 per cent and 1.53 per cent respectively. The performance of the naira exchange rate has also been very poor with an average exchange rate of N5.2/$ between 1986 and 1990 reaching an annual average of $99.15/$ between 2001 and 2004, an average depreciation of 1806.73 per cent under two decades. All these and other factors peculiar to individual banks have jointly influenced the behaviour and performances of the banking industry as they try to adjust to the vagaries of the macroeconomic environment. Olaniyan (2000) has indicated that inflation and its variability are part of the important indicators of macroeconomic instability in Nigeria with significant negative impact on investment. This study sets out to investigate specifically, whether instability in the macroeconomic environment impacts positively or otherwise on the lending behaviour of the Nigerian banking sector. As observed by Baum, Caglayan and
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