Financial Intermediation and Economic Growth in Nigeria: Evidence from the Intermediation Ratio, Domestic Credit, and Financial Deepening

Abstract

This study investigates the effect of financial intermediation on economic growth in
Nigeria from 2010 to 2023, examining the influence of the financial intermediation ratio,
domestic credit provision, and financial deepening on GDP. Design/Methodology – An ex-post
facto research design was employed, utilising secondary data from the Central Bank of Nigeria
(CBN) covering all 6,603 supervised financial institutions. Census sampling was used to collect
comprehensive aggregate data. Data were analysed via descriptive statistics, correlation, and
Ordinary Least Squares (OLS) regression using E-Views software. Unit root (Augmented
Dickey-Fuller) and multicollinearity (VIF) diagnostic tests were conducted. Findings – All
three financial intermediation indicators demonstrated significant positive effects on economic
growth. The intermediation ratio showed the strongest relationship (R² = 0.973, β = 2.382, p
< 0.001), followed by domestic credit (R² = 0.866, β = 1.612, p < 0.001), and financial
deepening (R² = 0.789, β = 2.131, p < 0.001). All three null hypotheses were rejected. Practical
Implications – Policymakers should prioritise enhancing financial intermediation efficiency,
expanding credit access for businesses and households, and deepening financial markets. The
CBN should adopt targeted regulatory frameworks to modernise intermediation processes and
promote financial inclusion through digital banking. Originality/Value – This study introduces
the financial intermediation ratio as a distinct measurement construct not commonly utilised
in prior Nigerian studies, offering a multidimensional analysis of the intermediation–growth
nexus in an emerging economy context.