Impact of Treasury Bill on Private Sector Credit in Nigeria

Abstract

In this study, the effect of treasury bills on private sector credit in Nigeria using annual data from 1981 to 2018 was examined. The specific objectives of the study were to examine the impact of treasury bills and treasury bill rate on private credit. Treasury bills was disaggregated into its various components and used as explanatory variables along with other essential macroeconomic variables. The study was conducted in the light of the crowding out effect hypothesis. The behavior of variables was captured in an autoregressive distributed lag (ARDL) model. The result of the estimated model shows that treasury bills held by commercial banks, treasury bills held by the public and treasury bill rate has significant negative effect on credit to private sector, showing that treasury bills have a crowding out effect on private sector credit. It is recommended that treasury bill rate should be set to align with other rate of return on short term financial asset in the financial system to allow for fair competition between public sector and private sector debt instrument and thus limit the crowding out effect and that the issuing of treasury bills should be justified with the existence of excess liquidity in the financial system.