Private Sector Credit and Gross Fixed Capital Formation in Nigeria

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This study investigates the impact of private sector credit on gross fixed capital formation in Nigeria from 1998 to 2024. employing an ex-post facto research design. The study used commercial bank loans to general commerce, commercial bank loans to industrial sector and commercial bank loans to the real sector as explanatory variables and gross fixed capital formation as dependent variable. Ordinary Least Square estimation techniques was used for the analysis. Commercial bank loans to general commerce exhibit a negative and insignificant impact, highlighting the need for revised lending strategies in this sector. However, loans to the industrial sector negatively but significantly influence gross fixed capital formation, necessitating a critical evaluation of government borrowing policies. Positive and significant impacts are observed in the real sector, suggesting a potential avenue for driving increased capital formation through targeted financing. However, total loans have a negative but statistically significant impact, necessitating improved risk management practices to ensure a positive influence on private domestic investment. In conclusion, the study establishes that private sector credit significantly impacts gross fixed capital formation in Nigeria. Recommendations include sectoral targeting, careful evaluation of borrowing policies, promotion of real sector lending, risk mitigation in total loans, and a holistic evaluation of lending policies. These findings contribute to a deeper understanding of the intricate dynamics between private sector credit and gross fixed capital formation, offering valuable insights for financial institutions, policymakers, and further research.