Abstract

The study analyzed the effect of interest rate on the borrowing ability of commercial banks in

Aier/ci usinc time series c/ala spanning from 2000 to 2017. High interest rate in the economy

seenis to be the ma/or problem of hank customers in terms of raising capital fund and this has

macic it c/i/f/cult fhr them to make investment due to lack of capital fund. The specific objectives

includes: to examine i/ic effect of interest rate on i/ic borrowing ability of bank customers and to

ascertain the effects of exchange rate on the borrowing ability of bank customers. The research

de.rign used in this research work was Ex post-Facto design. Based on the nature of the study as

ti/ne series was used, the secondary data was used in collecting data. The data were sourced from

Stati.rlical Bulletin oft/ic Central Bank of Nigeria (CBN,, Federal Office of Statistics (FOS) and

Annual Abstract of Statistic of the National Bureau of Statistic (iVBS,.). The data were analyzed

ieviii time Ordinary Least S'cjuare Technicjue (OLS and multiple regression to estimate the values

qf the parameters B. Bi and B2. Borrowing ability of hank customers in the study was measured

b3 total commnei'cial banks loans, while interest rate (lending rate,) and exchange rate was used as

the exjilanatoiy vciriables. With respect to i/ic general significance of the explanatory variables,

the adjusted R-squarecl value ('0.800738,) implies thai about 80.07% of the variations in

commercial banks' loans (CBL) was explained by the variations in i/ic explanatory variables which

denotes that i/ic regression /ias good fIt and is reliable. The F-statistic, a measure oft/ic overall

siniflcance of the regression model shows that the explanatory variables (INR and EXR) are

collectively significant at 1% level. Based on the findings, it was found out that Interest rate has

a negative cmndvigiiifIcant effect on borrowing ability of bank customers in Nigeria. Also Exchange

rate has a po.si lye and significant effect on the borrowing ability of hank customers. The study

t/iere/oi'e concludes that interest rate has a significant effect on borrowing ability of bank

cmi,vtomer,r in Nigeria. The study recommended that i/ic government should aim at creating a

macroeconomic environment that will reduce i/ic volatile exchange rate in Nigeria so that the

borroiting ability of bank customers can increase. And Government should use monetary policy

to regulate increase in interest rate by commercial banks t/irough Central bank so that the central

bank will reduce borrowing rate to i/ic commercial which i/ic commercial bank can in turn reduce

the horro t'ing rate (interest rcite,) to the ir customers.