Commercial Bank Financing Instruments and Power Sector Performance in Nigeria: Evidence from Panel Econometric Analysis (2010–2023)

Growth of the Nigerian economy has been constrained by issues relating to the epileptic supply of electricity as 2% of the Gross Domestic Product is channeled towards power generation and distribution. This study investigates the impact of commercial bank financing instruments—specifically letters of credit, performance bonds, and overdrafts—on the performance of Nigeria’s power sector from 2010 to 2023. The samples were drawn from 15 major power generation and distribution firms, and 10 commercial banks. Using secondary data sourced from the Central Bank of Nigeria, Nigerian Electricity Regulatory Commission, and selected commercial banks, we applied panel econometric techniques including fixed-effects (FE), generalised least squares (GLS), and system GMM to assess the relationship between financing instruments and power output. Diagnostic tests, including variance inflation factor (VIF), heteroskedasticity, autocorrelation, and unit root tests, were employed to ensure robustness. Findings indicate that letters of credit and performance bonds exhibit statistically significant positive effects on power generation, while overdrafts show no significant influence. Robustness checks confirm these relationships, underscoring the importance of structured, performance-linked financial instruments in enhancing infrastructure productivity. The study contributes to the empirical literature on financial intermediation in emerging economies and offers policy guidance for optimising financing strategies in the Nigerian power sector.