CHAPTER
ONE
INTRODUCTION
1.1. BACKGROUND OF STUDY
Commercial
banks play an important role in economic development of developing countries.
Economic development involves investment in various sectors of the economy. The
banks collect savings from the people and mobilize savings for investment in
industrial project. The investors borrow from banks to finance the projects.
Special
funds are provided to the investors for the
completion of projects. The bank provide a gurantee for industrial loan
from international agencies. The foreign capital, flows to developing countries
for investment in projects.
Commercial
banks are involved in the process of increasing the wealth of the economy,
particularly the capital goods needed for raising productivity. The developed economies
need the service of the banking system to enable the economy attain economic
growth, while the developing economies need the service of banking system for
sectorial development.
The
financial institution are therefore, capable of influencing the major saving
propensities and opportunity. The need to achieve sustained economic growth
within any economy can be possible admist strong financial institution and
precisely within the existence of a virile banking system. Their activities
must be such that are tailored to work in the congruence with government
policies and programmes in a bid to attaining the desired macro-economic
objectives as a nation.
Schumpeter
in 1934 observed that the commercial banking system was one of the key agent in
the whole process of development. Generally commercial banks not only
facilitates but speed up the process of economic development through making
more funds available from resources mobilized.
THE ROLE OF COMMERCIAL BANKS IN
ECONOMIC
GROWTH IN NIGERIA
The
banking system is a catalyst and engine of growth that is responsible for being
a lifewire to every sector of the economy. It is evident that no sector in the
economy can flourish or prosper without the support and services of the banking
sector, agricultural sector, manufacturing sector, mining or even services
sector can’t do without banks. Commercial banks provide and encourage savings.
The establishment of commercial bank especially in the rural areas makes
savings possible, hence economic development is accelerated.
Commercial
banks provide capital needed for development. Deficit spender unit obtain
medium and short term loans and overdraft from commercial banks to start a new
industry or to engage in other development efforts. They engage in trade
activities through making use of cheques and other financial instrument
possible. They encourage investment, provide direct loans to the government and
individuals for investment purposes. They provide managerial advices to
small-scale industrialists who do not engage in the service of specialist.
Commercial banks also render financial advice to their customers including to
invest in. Commercial banks create money as an instrument to the apex bank for
all its activities. Commercial banks help to enhance development of
international trade, these include acting as referees to importers, providing
travellers cheque to those going abroad, opening letters of credit as well as
providing credit for export. All these helps to promote international trade and
relationship between nations, they provide backup liquidity to the economy.
They are transmitters of monetary policy and they provide some “value added”
from transfering funds from savers to borrowers and providing liquidity.
The
current credit crisis and the transatlantic mortage financial turmoil have
questioned effectiveness of banks consolidation programme as a remedy for
financial stabilty and monetary policy in correcting the defects in the
financial sector for sustainable development. The consolidation of banks has
been the major policy instrument being adopted in correcting deficiencies in
the financial sector. The economic rationale for the domestic consolidation is
indisputable, an early view of consolidation was that it makes banking more
cost efficient because larger banks can eliminate excess capacity in areas like
data processing, personnel marketing or overlapping networks. Cost efficiency
also could increase if more efficient banks acquired less efficient ones.
Consolidation is viewed as the reduction in the number of banks and other
deposit taking institutions with a simultaneous increase in size and
concentration of the consolidation entities in the sector. The driving forces
in bank consolidation include better risk control through the creation of
critical mass and economies of scale, advancement of marketing and product
initiative improvements in the overall credit risk and technology exploitation.
These drivers has lead to improved operational efficiencies and larger and
better capitalized institutions.
1.2
STATEMENT OF THE PROBLEM
Given
that the economic trend of the commercial banking industry, one wondered what
has hindered economic growth, though an important avenue for banks to boost the
growth of the economy through efficient and effective saving investment
process(financial intermediation) to stimulate investment and productive
activities.
For
the past three decades, the Nigerian economy has not shown any favourable sign
of growth. For example, the real GNP growth rate figure was 2.8% in 1995 with
negative figures in years like 1982, 0.3% etc as depicted in the CBN periodic
bulletin in 1986. This shows that the Nigerian economy is not one that can
inspire confidence, if no drastic improvement is shown by financial
institutions with its economy especially in the new millenium.
1.In
what extent does commercial bank as a financial intermediate contribute towards
fund mobilization for economic growth and development of the country.
2.What
is the essence of commercial banks in Nigerian economy towards fund
mobilization for economic growth and development?
3.What
are the problems commercial banks encounter in their performance towards
mobilization of funds for economic growth and development?
1.3 OBJECTIVES OF THE STUDY
The
objectives of this research work are tactily stated as follows.
-To
determine the contribution of commercial banks towards a positive economic
growth and wealth creation.
-To
examine ways in which the commercial banks in Nigeria can be made to play
better roles towards fund mobilization for economic growth and development.
-To
analyse the constraints and short comings facing commercial banks in Nigeria
towards fund mobilization for economic growth and development.
-To
determine and test the effects of some relevant economic variable and factors
on the real gross domestic product(GDP) of Nigeria.
1.4 STATEMENT OF THE HYPOTHESIS
This
research work will be guided by the following hypothesis.
Commercial
banks do not contribute significantly towards fund mobilization for economic
growth and development of the country.
The
variables of commercial banks are lending deposits, real investment and interest
rate etc do not have any impact in the Nigerian economic sector.
The
constraints on the activities of the comercial bank do not affect their
economic role and activities.
1.5 SIGNIFICANCE OF THE STUDY
The
study makes clear the actual contributions and operations of commercial banks
in Nigeria. It will also sensitize the society on the importance of commercial
banks in Nigeria.
The
study will be important to the policy
makers and the federal government inorder
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