The Role of Commercial Bank to Economic Development in Nigeria
CHAPTER ONE
OBJECTIVES OF THE STUDY
The main objective of this study is to examine the role of commercial banks to economic development in Nigeria. Specifically, however, the research generally aims at:
- Econometrically determine the contribution of commercial bank loans to preferred sectors.
- Identifying of the constraints toward the granting of loans and advances.
- Examine the impact of commercial bank loans to economic development in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
THEORITICAL LITERATURE
Reforms are predicted upon the need for reorientation and repositioning of an existing status inorder to attain an effective and efficient state. There could be fundamental bottle-neck that may inhibit the functioning of the institutions for growth and the achievement of core objectives in the drive towards inhancing and sustaining the economic and social imperatives of human endeavour carried out through either government institution or private enterprises.
Consequently, the banking sector, as an important sector in the financial landscape, needs to be reformed inorder to enhance its competitiveness and capacity to play a fundamental role of financing investment. Many literature indicates that banking sector reforms are propelled by the need to deepen the financial sector and reposition it for growth, to become integrated into the global financial architecture, and involves a banking sector that is consulting with regional integration requirements and International best pratices.
The contention that the contributions of commercial banks should matter at all for growth and development has given rise to various opinions and theories among economists. Examining the current changes and advancement in more sophisticated growth models, which include financial intermediation, it was fairly obvious by the financial market have an important role to play in promoting industrial growth. Robinson(1952) maintained that it is economic development that demand financial services. A recent work done by Levine(1997) however argues that the preponderance of theoretical reasoning and empirical evidence suggets a positive first order relationship between financial insititutions and economic growth. Goldsmith(1969) asserted that banking sector’s role matter for real development because the banking super-structure in the form of both primary and secondary securities accelerate economic growth and development, they also improve economic performance to the extent that they facilicitate the transfer of funds to the best users, ie to the economic system where the fund will yield the highest social return.
Deveraux and Smith(1994) maintained that commercial banks can only mobilize economic growth through its influence, or decrease the savings rate and therefore growth is an open question. Greenwood an Jovanic(1990) are of the opinion that for commercial banks to affect economic growth through fund mobilization, commercial bank can increase the marginal productivity of capital called interest rate which determines to a great extent the amount that is saved or invested. According to Udochi (1981:11), despite the obvious benefits derived from the commercial banks, most Nigerians are not well motivated to make adequate saving and investments in this hard period, due to the financial crunch prevailing in the banking and non-banking secor of our economy. The public don’t hope to obtain enough funds from the banks neither could the bank afford to lend to an unpredictable project.
CHAPTER THREE
RESEARCH METHODOLOGY
Appied Econometric research (Econometric methodology). It is concerned with the measurement of the parameters of economic relationships and with the predictions (by means of these parameters) of the values of economic variables. The relationship of economic theory which can be measured with one or another economic technique are causal, ie, they are relationships in which some variables are postulated as causes of the variation of another variable Koutsoyannis (1977:11).
Econometric modelling which this research work make use of three major steps which includes:
Model Specification
Data Collection, Construction and Estimation
Model Evaluation, Soludo (1998:90)
The purpose of this research work however, is to ascertain how and to what extent the explanatory variables included in the model determines the dependent variables for the period of years caused in this work, and also the extent to fund mobilization as an important factor for investment and economic growth in Nigeria.
MODEL SPECIFICATION
Model Specification is showing or expressing the mathematical and economic relationships that exist between the dependent and independent variables. Several factors of Commercial bank have been identified as variables that influences GDP growth in developing countries. Some of these variables include: Real Interest Rate, Total Loans, Real Investment, Aggregate Deposit etc.
Most of these variables are very significant in the determination of GDP growth but owing to economic ambiguity and parsimon not all of them were captured in this study. Thus, the growth of the economy in any country is the measures of her Public Consumptions, Government Expenditure, Aggregate Investment and Net-Export, which can be referred to as Gross Domestic Product of the economy (GDP).
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF REGRESSION
RESULT
The result of the model was estimated using ordinary least square method OLS. The E-view 6.0 software package was used. The estimate were subjected to various statistical as well as econometric tests, after which an in-depth analysis was made on the result generated from the regression. The model was estimated with five variables real gross domestic products, real interest rate, total loans, real investment and aggregate deposit. These variables are added to capture their effects on real gross domestic product (RGDP). The variables used in the model were estimated in their norminal forms in other to get a consistent and unbiased result.
CHAPTER FIVE
SUMMARY, CONCLUSION AND POLICY RECOMMENDATION
SUMMARY
Banks play crucial role in the process of economic development by mobilizing funds from surplus spending units in the economy and by lending such funds to the deficits spending unit for investment.
This project was carried out with the intention that it adds value to the existing knowledge in the commercial banks in Nigeria’s economic growth and contribute immensely to solving the problems due to these institutions as well as to improve their protent state. It was observed from the econometric test carried out in chapter four that, majority of the individuals are more responsive to capital accumulation and re-inventing of disposable income than depositing them in the banks. This habit also favours the real GDP growth, they see higher net present value in investments and projects than saving cash in th banks.
In the practical sense of it, it could be stated that the positive sign of real interest rate is favouarable to the RGDP. In its violability, from the research, interest rate and total loans has more favourable and economic relationship with the RGDP growth than aggregate deposit. The level of investment and capital accumulation is high, therefor the industrial sector of the economy is sound, and the total capital of companies quoted in the stock market is economically recommendable. This depicts a good measure of economic performance in Nigeria.
POLICY RECOMMENDATIONS
The following are the policy recommendation, which the researcher believes, if applied will go along way in improving the roles and contributions of the commercial banks in ensuring economic growth in the country. Adjust the interest pain on deposits to be attributive in order to attract and increase the individual response to savings.
Recognition of potential economics: Banks should realize potential economics in banking system by opening and operating more offices/ branches in rural areas than concentrating and duplicating bank offices in the same area. Opening of rural branches should direct banks loan in favour of specific sectors such as small scale industries and agriculture in order to widen their investment interest and targets.
Conductive public relationship: Industrial and banks shoul seek a trade off between their principle and thev responsibility for commercial profitability.
Bureaucratic and Transaction checks; One of the factors which tends to deter the banking processing is the rising incidence of fraud in Nigeria, thus, leads to failures and distressing of banks. Its obvious consequences are to create fear and suspcious among customer and shareholders, reduces overall propensity to save, disengages staff jobs leaving banks securities open to question, commercial bank therefore needs to wage an all out war against fraud both from within and outside the banks in the interest of the public and economy at large.
Standard and stable capitalization: One of the major problems of the banks is undercapitalization. This issue can be tackled by attracting public patronage in form of deposits, high share offers with the assistance of the stock and security market in other to expand the banks resources and capital for stable and efficient existence and operation.
Adoption of more creative banking policies: Policy makers are more especially the Apex which has the overall fulling powers on financial and banking issues, should initiate conductive monetary and fiscal policies to boost the wellbeing of the people.
INNOVATIONS IN THE BANKING OPERATIONS AND SYSTEM;
Modern technologies and engineering should be introduced into the banking system is in view that the introduction of computer system is a venture that would payoff handsomely in the longrun.
CONCLUSION
The commercial banks have been the wheel of economic growth in Nigeria and will always be, having, thus discussed certain salient facts about the commercial banks upon which some conclusions must be arrived at. It is obvious that banks, inspite of all odds have created great positive impact on the nations economy. The banks have enough room to increase those impacts on the national economy.
With the new capitalization policy, the increase in the number of banks and their branches. The introduction of modern technologies and policies, the financial institution will in the near future occupy a position of mainstay of the economy in Nigeria. It is expected that this research will be a contribution to the idea to boost economic growth through the roles and activities of commercial bank in Nigeria.
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