MARKET POWER OF DEPOSIT MONEY BANKS AND ECONOMIC GROWTH IN NIGERIA

Abstract

Focus was on the relationship between Market Power of Deposit Money Bank’s and the Nigerian Economy for the period 1981-2020. Market power of Deposit Money Banks was proxied by Lending Rates, Deposit rates, Savings Rates and Interbank rates, while the Nigerian economy was proxied by Growth rates of Real Gross Domestic Products. Secondary data was obtained from the website of Central Bank of Nigeria statistical bulletin. Pretest was carried out using Augmented Dickey- fuller (ADF)test statistic to test for unit root. A mix order of integration was observed. The ARDL was thereafter used to estimate the equation, while the bounds test result revealed the long run relationship. The ARDL result revealed that at short run, there was no significant relationship between Market Power of Deposit Money Banks and Real Gross Domestic Products in Nigeria. The bounds test results shows that the long run relationship was not strong. These results indicates that Deposit Money Banks in Nigeria do not have market power over prices of their products and services. Hence a perfect market exists in the banking system which is not controlled by one or few banks which may control prices with the view of making high profit. Thus, the banking system is highly concentrated and regulated. The study concludes and Recommends that Lending rates, Deposit rates, Savings rates and interbank lending rates should be regulated by the monetary authorities to ensure stability in the economy. There should be free entry and exit of Deposit Money Banks who meet up with capitalization requirements. Savings rate could be encouraged with its positive outlook at lags one and two