IMPACT OF DIGITAL FINANCE ON BANKS’ CREDIT ALLOCATION IN NIGERIA
IMPACT OF DIGITAL FINANCE ON BANKS’ CREDIT ALLOCATION IN NIGERIA

Summary/Abstract: Using Vector autoregression (VAR), variance decomposition and Pearson correlation techniques, this study investigates the impact of digital finance on banks’ credit allocation in Nigeria between 2009Q1 and 2019Q4. The study specifically aims to examine the impact of digital finance (proxied with value of Automated Teller Machine (ATM), Point of Sales (POS) and web payment (WEBPAY) transactions) on total sectorial credit allocation of deposit money banks in Nigeria. This study finds no long-run relationship between digital finance and credit allocation of deposit of money banks in Nigeria. Furthermore, digital finance and banks’ credit allocation were found to have strong and positive correlation in Nigeria. It is also unveiled that, unlike the value of POS transactions which have negative and non-significant impact, the value of ATM and WEBPAY transactions have positive but non-significant impacts on banks’ credit allocation in Nigeria. It can therefore be concluded that, though, a strong and positive correlation exists between digital finance and banks’ credit allocation but the former (digital finance) does not exert significant impact on the latter (credit allocation function of deposit money banks) in Nigeria in the period of study. There is therefore the need for the current pace of digital finance adoption in Nigeria be intensified in order for it to achieve the desirable impact on banks’ credit allocation function in the country.

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