Impact of Monetary Policy Rate on Lending Behaviour of Commercial Banks in Nigeria

The monetary policy rate is the Central Bank of Nigeria's principal instrument for influencing credit supply and economic activity, yet its transmission to commercial bank lending behaviour is imperfect and context-dependent. This study investigates the impact of the monetary policy rate on the lending behaviour of commercial banks in Nigeria for the period 2010 to 2023, using secondary time-series data sourced from the Central Bank of Nigeria Statistical Bulletin and the Nigerian Exchange Group. Lending behaviour was operationalised as total credit to the private sector, sectoral loan concentration, and average prime lending rate. Autoregressive distributed lag bounds testing was employed to assess short-run and long-run relationships between the monetary policy rate and credit variables. Results revealed a statistically significant negative long-run relationship between the monetary policy rate and total credit to the private sector (coefficient = -0.68, p < 0.05), confirming the credit channel of monetary policy transmission. In the short run, commercial banks demonstrated stickiness in adjusting lending rates, with an average adjustment lag of two to three quarters. The study concludes that monetary policy transmission through the bank lending channel is sluggish in Nigeria, partly because of structural oligopoly in the banking sector and information asymmetries in credit markets. The findings recommend complementary macroprudential policies to enhance the effectiveness of interest rate transmission in Nigeria's banking sector. Keywords: monetary policy rate, lending behaviour, commercial banks, credit supply, Nigeria