A successful business must have adequate capital, and this is undoubtedly one of the main causes of the subpar performance of the majority of firms in the Nigerian industrial sector. Despite the significance of bank loans, the industrial sector continued to struggle with a lack of funding for profitable investments, which contributed to its subpar performance in recent years. Industrialists were unable to acquire credit because of the strict restrictions and regulations that must be completed in order to provide bank credits. The main obstacle to the economy's growth is poor people's lack of access to finance. Additionally, it is noted that due to limited intermediate goods and weak infrastructure, bank lending to industrialists is extremely expensive. in Nigeria. Thus, the industrialists fail to accomplish the core business goal of maximizing profit. Additionally, the government's bank credit policies fell short of their anticipated goals. Additionally, the recent increase in the Monetary Policy Rate (MPR) from 12 to 14 percent signals that the current government's policy of diversifying the economy away from oil and toward non-oil, where the industrial sector is central, calls for an investigation into the significance of bank credit, which is significantly influenced by the current interest rate on Nigeria's industrial output. Given the aforementioned, this study was done to find out how bank credits affected Nigeria's industrial sector's performance.

A bank and a customer enter into a contract under which the customer is given access to financial resources in the form of credit with a pledge to return the credit at a later time with interest. Bank credit is the process of making money available to a customer based on some negotiated terms with regards to repayment with interest, John&Terhemba. Credit, according to Ajayi, is a commitment made by one party to another to reimburse them for money borrowed or products and services obtained. Therefore, banks owe money to those who deposit it and owe money to those who borrow it. Ogunmuyiwa, Okunneye, and Amaefule [1] Commercial banks are often short- and medium-term lenders. However, in recent years, they have started to offer long-term financing, particularly through loan syndication.

From 1981 to 2018, Nigeria's manufacturing sector output cumulative growth has been inconsistent. According to Tables 1 and 2, the sector had both upswings (positive growth) and downswings (negative growth) during this time.

The Role of Commercial Banks in Nigeria's Industrial Sector

The need for bank services has caused the role of commercial banks in Nigeria to steadily increase. Banks started to take on a bigger role in Nigeria during the pre-independence era when resources were needed for entrepreneurship and infrastructure development. The 24 commercial banks that make up Nigeria's banking industry, according to the Central Bank of Nigeria's 2016 report, performed better than expected, with total assets of N28173.3 trillion and N31682.8 billion in 2015 and 2016, and N16,117 billion in loans and advances, respectively. In 2016, a total of N6180.0 billion was put into banks. [2]. Various economic sectors have suffered the impact of this lending throughout time, but banks credit has being rising.

Table 1: Industrial Production in Nigeria 1980s And 90s

Source: CBN, Statistical bulletin, 2018

Table 2: Industrial Production in Nigeria 2000s

Table 3: Summary of Relevant Literature

Source: Author’s compilation

Private Sector Credit History in Nigeria

This sub-section highlights the amount of credit to private sector by the banking sector to selected sub-sectors in the real sector. For example, for the period 2006–2009, total credit to the economy from the banking sector rose from N2,650.5 billion in 2006 to N9,830 billion in 2009 and averaged N5,056.7 billion during the period. On average, 41.8 percent of total credit went to real sector operations, including agriculture, solid minerals, manufacturing, real estate, public utilities, and communication. The remaining 58.2 percent went to general commerce, services, and government. Anyanwu [3]. Manufacturing's percentage of total economic credit dropped dramatically from 12.06 percent in 2003 to 8.40 percent in 2007. The biggest credit allocation was given to manufacturing, which had an average proportion of 13.2%. Solid minerals and communication came next, with average shares of 11.1 and 7.7 percent, respectively. At 2.1%, the average for agriculture was appalling.

Theoretical Review 

Wicksel Theory of Lending: The KuntWicksel idea contrasts the marginal product of the capital with the expense associated with borrowing money. It was suggested that business owners should borrow money to buy inventory, machinery, and real estate. if capital's natural return rate is higher than interest rates. The demand and associated costs for all sorts of resources would rise. When the interest rate exceeds the natural return on capital, the reversal would apply. Wicksell claimed that pricing pressures would persist even when additional credit was extended in opposition to production increases and that price stability would only be felt when the two rates were equal.

The Quantity Theory of Credit

The author presented the Quantity Theory of Credit with a central focus on different equations of exchange differentiating between money used for industrial transactions and money used for non-industrial transactions in his work towards a quantity theory of disaggregated credit and international capital flows (1992). Empirical analysis.

Andabai and Eze looked at a 27-year period, from 1990 to 2016, for a causality examination of bank loan and manufacturing sector growth in Nigeria. Secondary data were used, and they came from the Statistical Bulletin of the Central Bank of Nigeria. For this investigation, there were five variables used.

In their 2017 study, Ugwuanyi and Utazi look at the expansion of the manufacturing sector in Nigeria in response to commercial bank loans between 1980 and 2015The study found that the lending interest rate and exchange rate are the main obstacles to the manufacturing sector of the Nigerian economy. This was demonstrated by using the OLS technique and ARDL for variables like manufacturing value added (MVA), lending interest rate (LINT), exchange rate (EXR), and bank deposits (BD).

A study by Akpan, Yilkudi, and Apiah uses annual data from 1981 to 2014 and the Vector Error Correction Model (VECM) to examine how loan rates affect manufacturing sub-sector output. The empirical findings suggested that high loan rates had a long-term negative influence on manufacturing production.

Toby and Peterside examined how banks financed Nigeria's manufacturing and agricultural sectors between 1981 and 2010Contributions of agriculture and manufacturing to the GDP, lending by commercial and merchant banks to agriculture, and commercial analysis directly on the panel data 1 and2 by multiple regression analysis. They discovered that banks still have a limited role in helping the manufacturing and agricultural sectors contribute to economic growth. Therefore, it is advised that monetary policy instruments emphasize mandatory sector credit allocation with suitable incentives to increase the flow of funds from the banks to the real sector.

In Nigeria between 1975 and 2009, Tawose looked into the impact of bank advances and loans on industrial performance. Co-integration and error correction techniques were used to examine long-term relationships and adjustments to shocks and dynamics.The findings demonstrated that all of the investigated explanatory variables and industrial performance were co-integrated. Real GDP was utilized as a proxy for the industrial sector's dependent variable, while the total amount of savings in the economy (SAV), the interest rate (INT), and the inflation rate (INF) were employed as the independent variables. The study clearly shown that during the study period, the behavior of Nigeria's real GDP contribution from the industrial sector was strongly explained by loans and advances made to that sector by commercial banks, total savings, interest rates, and inflation rates.

The relationship between private sector credit (including loan to the manufacturing sector) and economic growth in Nigeria was examined by Aliero et al. using the autoregressive distributed lag (ARDL) model. When private sector credit was utilized as the dependent variable, the results showed that a long run equilibrium relationship exists between private sector credit and economic development over a 37-year time span (1974–2010). The causality tests, however, support Onuorah and Anyachukwu's findings that there is no causal link between the private sector and Nigeria's economic growth.

Ogar, Nkamene, and Effiong [4] looked into how loans from commercial banks affected industries involved in manufacturing. The study's variables included secondary data such as manufacturing production, commercial bank loans, and commercial bank interest rates. On the models, multiple regressions with ordinary least square were utilized.

Model Specification

The assessment embraced the model alluded by Onuorah and Anayochukwu, [5] in line with Auranzeb [6] with substitution of variables to determine the relationship;

Bc = F(C)

Bc= α + βCe + µ

Where Bc represents bank credit

Ce stands for cement manufacturing GDP 

Estimation Techniques

This study makes use of Unit root test, Johansen Co-integration test and Granger causality test Etc.

Unit Root Test

The variables of bank credit to the industrial output index must be stationary at a level suggesting long run equilibrium in order to continue with regression. The term "stationarity" means that the variables' mean, variance, and covariance are not affected by time. If a variable has zero order or no unit root, it is referred to as stationary. integration 1(0)

Test for Co-integration

Co-integration analysis was done to see if there was any evidence of long-term relationships between any or all of the assessable regressors. This study used the cointegration, which was made popular by Pesaran, Shinand Smith, and Smith [7], to determine whether there was a long-term relationship between the regressors. The test involved comparing the upper critical value with the F-statistic. to determine the rejection of the null hypothesis of no cointegration or hypothesis of cointegration. Existence of cointegration submits that the long-run and short-run coefficients of the model can then be estimated

Granger Causality Test: this test is conducted to ascertain causality between two variables in a time series.

According to Table 4 stationarity test, the initial difference between bank credits and GDP from cement manufacturing is stationary. Specifically, I incorporated order one (1). Therefore, since the variables are not stationary, we cannot reject the null hypothesis.

Table 4: Unit Root Test Results for Variables (Augmented Dickey-Fuller Test)

Source: Author’s Computation

The results of the two versions of the Johansen cointegration tests (Trace and Maximal Eigen Statistics) are displayed in Table 5

Both the trace statistic and maximum Eigen statistic confirm the existence of 1 cointegrating vector or equation. This implies the existence of a long-run relationship between Bank credits and Cement Manufacturing GDP.

Table 5: Unrestricted Cointegration Rank Test Trace

Source: Author’s Computation

From the result of Table 6, evidence had shown that there is no directional causality among the variables.

Table 6: Results of Granger Causality Test

Source: Author’s Computation

The main conclusions of this study indicate that the performance of the industrial sector was positively and considerably impacted by commercial banks' loans. These  findings corroborate the finding of numerous researches that increasing bank lending to the industrial sector is essential for promoting its growth and effectiveness. Perhaps obtaining sufficient financing at reasonable interest rates from commercial banks would help Nigeria's industrial sector recover from its declining state.

Recommendations

According on the study's findings, the following suggestions were made:

The industrial sector will be immediately relieved by a large decrease in bank lending rates, which will spur investment activity.an increase in the amount of money available to investors, which will enhance the industrial sector's output and their performance.

1. Ogunmuyiwa, M.S. et al. “Bank credit and growth of the manufacturing sector nexus in Nigeria: an ARDL approach.” Euro Economica, vol. 2, no. 36, pp. 62–72, 2017.

2. Central Bank of Nigeria. “N200 billion intervention funds for refinancing and restructuring of banks loans to the manufacturing sector guidelines.” 2016.

3. Anyanwu, C. “Productivity in the Nigerian manufacturing industry.” CBN Occasional Papers, pp. 1–35, 2000.

4. Ogar, A. et al. “Commercial bank credit and its contributions on manufacturing sector in Nigeria.” European Scientific Journal, vol. 8, no. 3, pp. 19–36, 2014.

5. Onuorah, A.C. and Anayochukwu, O.B. “Bank credits: an aid to economic growth in Nigeria.” Information and Knowledge Management, vol. 3, no. 3, pp. 41–54, 2013.

6. Auranzeb. “Contribution of banking sector in economic growth: a case of Pakistan.” Economics and Finance Review, pp. 45–54, 2012.

7. Pesaran, M.H. et al. “Bounds testing approaches to the analysis of level relationships.” Journal of Applied Econometrics, pp. 289–326, 2001.