Box-Jenkins Modelling of Nigerian Maximum Lending Rates
Henry Izukanma Amamah & Ette Harrison Etuk
Department of Mathematics
Rivers State University, Port Harcourt
Email: etuk.ette@ust.edu.ng
Corresponding Author: Ette Harrison Etuk
ABSTRACT
The Nigerian Maximum Lending Rate (NMLR) has been increasing continually for some decades now. This calls for concern and immediate attention of Nigerians and the Government as increasing NMLR is an indication of increasing lending rate of commercial banks in Nigeria. The NMLR has been surging higher and higher year by year without any intervention on its path, be it economical, financial, or even governmental. If this factor remains unchecked, the investors would find it difficult to borrow which would consequently lead to low investment, low production, and increase in the cost of living. The study aimed at modeling NMLR, and using the model to make a 12-month forecast. The methodology adopted was the Box-Jenkins ARIMA. Four models- ARIMA(5 1 0), ARIMA(0 1 6), ARIMA(2 1 1), and ARIMA(1 1 2) were proposed; after diagnosis, ARIMA(1 1 2) emerged as the best of them all. The data analysis and the forecast were carried out with the aid of two computer software packages (Eviews and Minitab). Based on the continual increase in NMLR and its 12-month out of sample forecast, it was recommended that cash reserve of the commercial banks be reduced, and were also urged to reduce their cost of operation to the possible minimum. Finally, the Federal Government should intervene by initiating and employing policies that would bring NMLR down.
