- Availability of creditworthy borrowers/ customers. A large number of people with the ability to borrow and pay back the loans leads to high credit creation while a small number of credit worthy customers as a result of majority being poor results into low levels of credit creation.
- Size of the cash ratio. A high cash ratio leads to low credit creation as more money is reserved by the bank while a low cash ratio leads to high levels of credit creation because more funds are made available for lending.
- Availability of collateral security. A small number of people with collateral security to present for loans limit borrowing and lending hence low credit creation while a large number of borrowers with collateral security leads to high level of credit creation since banks are sure of receiving back their money through the security offered by the borrowers.
- Interest rate on loans. High interest rates discourage people from borrowing because they make borrowing expensive. This leads to low credit creation. However, low interest rates encourage borrowing hence high credit creation.
- Level of accountability. Rampant corruption and embezzlement of funds by bank officials weakens their ability to extend loans hence low levels of credit creation. On the other hand, proper accountability of funds leads to growth and development of commercial banks putting them in a better position to create more credit.
- Level of liquidity preference. A high level of liquidity preference limits deposits in commercial banks since people prefer to keep money themselves without making deposits hence limiting the level of credit creation while a low level of liquidity preference avails adequate funds in banks for lending leading to high level of credit creation.
- Knowledge about services offered by commercial banks.
Awareness of the public about services offered by commercial banks leads to high savings and popularity of loans leading to high level of credit creation. However, high degree of ignorance by the public about services offered by commercial banks limits saving in banks and results into unpopularity of loans hence limiting the credit creation process.
- The popularity of loans among the people.
- Level of investment. A high level of investment increases effective use of commercial banks and demand for loans to run the investments hence high level of credit creation while a low level of investment reduces the use of commercial banks and lowers demand for loans leading to low level of credit creation.
- Degree of economic certainty/ rate of inflation/ economic climate. Economic instabilities such as inflation discourage investment thus reducing the demand for loanable funds hence low levels of credit creation. On the other hand, economic stability in form of stable prices of goods and services encourages people to borrow and invest leading to high credit creation.
- Political atmosphere.
Political stability creates a conducive investment climate thus encouraging investment making commercial banks to give out loans hence leading to high credit creation. However, political instability creates a poor investment climate thus discouraging investment making commercial banks reluctant to give out loans hence limiting the credit creation process.
- Monetary policy by the central bank. A restrictive monetary policy leads to low credit creation because it reduces the commercial banks’ ability to extend loans while an expansionary monetary policy leads to high credit creation as more money is available for lending.
- Size of bank deposits/ level of savings. A big size of bank deposits avails large sums of money for commercial banks to lend hence resulting into high level of credit creation while a small size of the bank deposits results into small funds for lending limiting the level of credit creation.
- Distribution of commercial banks. The concentration of commercial banks in urban centres makes them to compete for the deposits within the area and fail to capture savings from rural areas leading to low level of credit creation. On the other hand, distribution of commercial banks in all parts of the country reduces competition among commercial banks for customers resulting into high level of credit creation.
- Level of income of the population.
High income level of the population encourages savings leading to high credit creation while low income level of the population limits savings thus leading to low level of credit creation.
- Size of the subsistence sector/ level of monetization of the economy.
A highly monetized economy leads to increased demand for loanable funds as people use money as a medium of exchange hence leading to high level of credit creation. However, a large sub subsistence sector discourages borrowing, saving and investment. Such a combination reduces the process of credit creation since the sector is not money oriented.