This study is an attempt to investigate the influence of the Nigerian banking sector evolution on the nation’s economy from the period 1986 to 2015. The Nigerian banking sector has undergone various reforms in recent times which have led to some positive scores and improvements as depicted by various reports by the IMF, World Bank, KPMG, among others. However, in the IMF World Economic Outlook (2016), Nigeria was not listed among the 15 fastest growing economies in Africa despite its intention to be among the 20 largest economies in the world by the year 2020. This finding provoked my interest to investigate the casual relationship between banking sector evolution and economic growth in Nigeria using the Autoregressive Distributed Lag (ARDL) approach to co-integration. GDP annual growth rate was employed as a proxy for economic growth, while five regressors were established as banking sector evolution and real sector growth indicators. Data was extracted from the World Bank database. The result reveals that banking sector evolution indicators does not jointly influence economic growth in Nigeria in the short run. Although, Domestic credit provided by the banking sector which measures the degree of financial intermediation has a positive relationship with GDP, the relationship is insignificant to explain economic growth trend in the long run. The negative sign exerted by the coefficient of the ratio of broad money to GDP indicates a poor financial deepening. The government and monetary authority’s policies should be geared towards strategically ensuring a private sector inclusive growth through the financial intermediaries, adequately deepen the financial system through financial innovation, sound regulation and supervision of the banks, and total overhauling of the national database and security system to foster national integration among others.
Economic growth, Banking sector evolution, ARDL, National database, Financial deepening.