The Impact of Financial Performance in the Banking Sector on Economic Growth in Nigeria
Chapter One
Objective of the study
The main objective of this study is to find the effect of the banking sector’s financial performance on economic growth in Nigeria.
The specific objectives are:
- To determine the effect of liquidity on economic growth.
- To determine the impact of loan to deposit on economic growth.
- To determine the impact of return on asset on economic growth
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
Financial Intermediation
Financial intermediation implies the act of channeling funds from the net savers, who have idle funds, to the investors or borrowers who need those funds. Melicher and Norton (2011:50) define financial intermediation as the process by which savings are pulled together in depository institutions and subsequently lent out or invested elsewhere. Schumpeter (1991) in King and Levin (1993) assert that the services provided by financial intermediaries are essential technological innovations and economic development. Those services include savings mobilization, project evaluation, risk management and transaction facilitation. The performance of those specialized tasks aside, several theoretical models postulate that the financial intermediaries also help to mitigate the cost associated with information acquisition and the conduct of transactions. According to Afolabi (1998:260), what has necessitated the existence of financial intermediation is the fact that, on their own, the lenders and the borrowers cannot come into direct contact. Another justification for financial intermediation is the existence of surplus and deficit sectors. Credit is viewed as an important aspect of financial intermediation which makes funds available to those economic entities that can use them most productively. Shaw (1973), Greenwood and Jovanovich (1990), and Bencivenga and Smith (1991) all emphasize the role of financial intermediation in boosting economic growth. They contend that if the matching of lenders with savings to borrowers who need the money through an agent or third party, is successful, the lender obtains a positive rate of return. The borrower receives some returns for risk taking while the financial intermediary receives some reward for making a successful match. Jaffe and Russel (1976) provide a theoretical model. Stiglitz and Weiss (1981) also have their own model. Both researches are considered as containing the current theories of financial intermediation. The theory of Jaffe and Russel (1976), is wrapped up with the postulation that, because of the existence of asymmetric information, high quality borrowers would prefer some rationing if the smaller loan sizes lower the market average default probabilities. When that happens, the premium is reduced. On their own part, Stiglitz and Weiss (1981) create a model of bank credit rationing where some borrowers receive loans while others do not. The assumption is that interest rates directly affect the quality of loans because of some adverse selection or the effects of moral hazard. They maintain that it is possible to avert the effects of adverse selection and moral hazard. The two scholars assert that banks have an incentive in some circumstances to ration credit instead of making demand for loanable funds.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to the effect of financial performance banking sector on economy growth in Nigeria. CBN in Abuja form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to the effect of financial performance banking sector on economy growth in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing an the effect of financial performance banking sector on economy growth in Nigeria
Summary
This study was on the effect of financial performance banking sector on economy growth in Nigeria. Three objectives were raised which included: To determine the effect of liquidity on economic growth, to determine the impact of loan to deposit on economic growth and to determine the impact return on asset on economic growth. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN, Abuja. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
It has been established from the study that there is a great link between the reforms in the financial sector and the economy of a nation. In Nigeria, it was discovered that the financial sector is a great determinant of level of development in the economy. The rate of lending was however found to be insignificant i.e it has so far been unstable, but credit granted to the private sector has increased tremendously. Thus, it can be said that the importance of this sector cannot be over emphasized as total credits to the private sector are still on the increase in spite of the major constraints posed by the government regulations, institutional constraints and other macro economic factors. However, both government and commercial banks should be mindful of the facts that the environments in which they operate are important factors in the bank performance and behaviour. Where the environment is conducive and supportive, performance is enhanced and good lending behaviour is guaranteed.
Recommendation
It should be noted that, though the financial reforms affect the financial sector, external factors as well do have effect on the financial sector. Factors such as political unrest, international influence e.t.c., and all these can be addressed from without the sector. Based on the findings, it is recommended that:
- There should be appropriate planning before the developments are carried out
- There should be the ensuring of macroeconomic stabilization, which is the ultimate, as the activities in all other sectors affect this or is affected by it.
- There should be a body that supervises the reform and ensure a successful follow up of such developments.
- There should be the ensuring of political stability as this also affects the effective operation of the financial sector.
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