IMPACT OF DEPOSIT MONEY BANKS ON THE GROWTH OF AGRICULTURAL SECTOR IN NIGERIA.

Abstract

This study examined the impact of deposit money banks' (DMBs) loan-to-deposit ratio (DBLDR) and machinery financing (DBMF) on the growth of Nigeria's agricultural sector from 1981 to 2023. The objective was to explore the short-run and long-run effects of these financial variables on agricultural output (AO). An ex-post facto research design was adopted, utilizing the Autoregressive Distributed Lag (ARDL) model to analyze the relationship between DMBs' credit allocation and agricultural growth. The theoretical framework of the study was anchored on the Fractional Reserve Theory, Financial Intermediation Theory, and Schumpeter’s Supply Leading Theory. The results showed that while DBLDR and DBMF had a negative impact on agricultural output in the short run, their long-term effects were either delayed or insignificant. This suggests that initial challenges, such as high lending rates, credit access issues, and infrastructural deficits, hinder immediate agricultural growth but contribute to long-term sectoral development. The study concluded that improving credit allocation efficiency, reducing interest rates, and addressing infrastructure gaps could significantly boost agricultural sector growth in Nigeria. Based on these findings, the study recommended optimizing credit provision for agriculture, lowering lending rates, improving infrastructure, and offering more flexible loan conditions for machinery financing. These measures would create a more favorable environment for sustainable agricultural development.