Effects of the Development of Financial Sector on Economic Growth: An Analysis of Nigerian Banking Industry

Abstract

This study examined the effects of financial sector development on economic growth in Nigeria, with a specific focus on the banking industry over the period 2000 to 2024. The objectives were to determine whether a relationship exists between banking sector development and economic growth, and to assess the performance of the financial sector in driving economic growth in
Nigeria. Time-series quantitative data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics, World Bank Data, and the International Monetary Fund (IMF) Economic Outlook Database. The findings revealed a significant positive relationship between real gross domestic product (RGDP) and key financial indicators, including broad money supply (M2), credit volume (CV), bank assets (BA), and liquidity ratio (LR). The relationship was found to be moderate to strong in magnitude and positive in direction, indicating a meaningful capacity to stimulate economic growth. The study recommends that financial sector operators recognize and strategically leverage this relationship to foster sectoral growth. Furthermore, the government and its relevant agencies should restructure banking sector monetary policies to enhance the industry’s contribution to Nigeria’s long-term economic growth and prosperity.