Exchange rate volatility and bank lending to agricultural sector in Nigeria

This study has focused on the volatility of exchange rate and bank lending to the agricultural sector in Nigeria. This study was confronted by the volatility of the naira exchange rate and its impact on agricultural credit in an economy which relies on imported inputs, machinery and formal credit for agriculture. The purpose of the study was to examine the impact of exchange rate volatility on bank lending to the agricultural sector in Nigeria. The financial intermediation theory, credit rationing theory and bank lending channel theory are the basis of this study. The type of research design used was expost facto while the type of data used was time series with number of observations of 39 years (1986-2024). The data were collected from the secondary sources primarily from the official macro-economic and financial data. Descriptive statistics, Augmented Dickey-Fuller unit root test, ARCH model and GARCH model were used as the method of data analysis. The level of significance was 0.05. The results of the GARCH indicated that the exchange rate had positive and significant influence on the bank lending to agriculture while the ARCH and GARCH terms indicated that there was volatility persistence. The results suggested that exchange rate instability had an impact on agricultural lending behaviour in Nigeria. The study concluded that one of the important conditions for sustainable financing of agriculture was the stable exchange rate. The study recommended for a foreign exchange credit window for Agriculture with targeted approach to alleviate the burden of input costs and agriculture credit. This study has made contribution to knowledge as it has discovered direct relationship between exchange rate volatility and agricultural bank lending.