Interest Rate and Deposit Money Banks Credit : A Study of Nigeria and South Africa

This study is a comparative examination of the relationship between interest rate components and DMBs credit to the domestic economy in Nigeria and South Africa from 1991 to 2018. The specific objectives of this study analysed both the long run and short run relationship between lending interest rate (LIR), deposit interest rate (DIR), interest rate spread (IRS), risk premium on lending rate (PLR), real interest rate (RIR) and credit ratio of commercial banks to the domestic economy (CBDS). The study sourced data from World Bank Data base and Knoema for Nigeria and South Africa its sample countries and anchored on Portfolio theory and subject them to ARDL Co-integration and ARDL regression techniques at the 5% level of significance. The findings in Nigeria result indicated that interest rate components showed absence of significant long run and short run relationship with credit ratio of DMBs to the domestic economy while the South African interest rates components showed significant presence of long run and Short run relationship with domestic credit provided by the DMBs. The study concluded that interest rate components have significant relationship with credit ratio of DMBs to the domestic economy in South Africa while having insignificant impact in Nigeria. Hence, the study recommends strengthening of the depth of credit capacity of banks as more reduced interest rate components would improve the credit capacity of banks in South Africa while the Nigeria interest rates components should drastically be reduced to exert significant impact and improve credit facilitation of DMBs. Keyword: Interest rate, bank credit ratio, lending rate, deposit rate & risk premium to lending rate