Banking Policies and Bank Density in Nigeria

Abstract

This study examines the evolving relationship between banking infrastructure density and its influence on banking policies in Nigeria, with financial inclusion policies under consideration. Recognizing the shift from traditional brick-and-mortar banking to digital-led intermediation, the study utilizes an Autoregressive Distributed Lag (ARDL) framework to analyze time-series data from 2013 to 2025. The model specifically tests the impact of physical bank branches, Point-of-Sale (POS) terminal density, and Mobile Money penetration on the growth of formal bank accounts. Diagnostic tests, including the Augmented Dickey-Fuller (ADF) unit root test, revealed a mixture of I(0) and I(1) integration orders, justifying the transition from OLS to a dynamic ARDL model. The empirical results demonstrate a significant long-run multiplier effect for digital infrastructure; specifically, a 1% increase in POS density results in a 1.23% increase in financial inclusion (p < 0.01). While Mobile Money adoption shows a strong positive correlation with account ownership (0.32, p < 0.01), physical bank branch density remained statistically insignificant in the long run. These findings suggest a "structural decoupling" of financial inclusion from physical bank branches in the Nigerian landscape. The study concludes that the "Phygital" model, leveraging widespread agent networks and mobile platforms, has become the primary driver of banking policy success. It is recommended that the Central Bank of Nigeria (CBN) shift its regulatory focus from branch-opening mandates to enhancing agent liquidity and digital security to bridge the remaining exclusion gaps.