Bank Recapitalization and Real Sector Performance: Empirical Evidence From Nigeria.

Abstract

This study investigates the impact of bank recapitalization on real sector performance in Nigeria. Specifically, the study examines the direct effect (bank investment) and indirect effect (loans and advances to real sector) on realsector output growth between the period 1986 and 2012.This study departs from previous studies because we aggregate the three leading sectors (agriculture, manufacturing and building and construction) of the Nigerianeconomy to arrive at our real sector index. Also, having carefully subjected our data to necessary econometric tests we employed chow test for structural break to test for the existence of policy shift between bank capital base and loanto the real sector of the Nigerian economy as a result of bank recapitalisation policy .Similarly, OLS estimates was used to determine the direct and indirect effect of bank capital base and real sector output growth. The results fromstructure break tests reveal that bank recapitalization policy causes policy shift in bank capital base and loan to real sector thus the policy is of significant impact to real sector performance .In corollary, the result from the OLS stronglyindicates that bank capital base has significant effect on real sector output growth directly and indirectly. We then conclude that Nigerian banks should be adequately capitalised as to play active intermediateting roles expected ofthem in this modern and competitive global economy