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CHAPTER ONE 1.1 INTRODUCTION BACKGROUND OF THE STUDY The economy of any country consist of sectors these sectors include industrial transport, agricultural, mineral production, manufacturing sector etc. All sectors of the economy work in an inter-related and inter-dependent whole, therefore any malfunction of one or more sectors of the economy automatically affect the economy as a whole.
However, different sectors have different roles in the same economy. This truth also applied to banking sector in the Nigeria economy. Banking sector are more regulated in the Nigeria economy than other institution because of the rate at financial intermediaries. It is vary difficult to see any economy move forward without a sound financial sector capable of playing its significant role in resources mobilization and allocation. As financial intermediaries, banks sectors mobilize funds, from the surplus spending unit at a cost for an- leading such funds to the direct spending unit at a price. Commercial banks are financial institutions that deal with money and credit and also receive deposits from public and organisations. Some of which are repayable on demand by cheque. Commercial banks are public limited companies owned by shareholders. They operate in commercial basis, that is, they are out to maximize profit by trading in money. They differ from other banking financial institution because they honour cheques drawn by their customers on their demand deposit.
The role of commercial bank in transforming the economic framework of Nigeria cannot be over-emphasized. In effect, they give out loans advances, thereby providing shorter and medium term capital for investors.
The loan and advances may be in the form of direct loans, overdrafts by the discounting at bills. With the amount borrowed, investors could finance various project in the areas of industry, agriculture and commerce. This therefore, helps to speed up economic development. Finally, commercial banks constitute the heart of any barking system. They are involved in general banking services to their customers and also play various roles in ensuring economic development in Nigeria economy. Consequently, in-depth investigations were conducted in the following: a. Volume of loans given by commercial banks to economic sector in Nigeria b. In-depth analysis of the problem of economic development in Nigeria economy. c. Suggestions on how to alleviate some of the problems in order to achieve the derived objectives. Before and immediately after Nigerian independence in 1960, agriculture played a crucial rate in Nigeria economic development as a nation.
It provided employment to millions of Nigerians and over 75 percent of the labour force mostly from rural areas, were into the sector. During this period, these sectors accounted for about 70% of Gross domestic product (GDP) this was a period when we were not virtually self sufficient in the production raw materials for industrial and major cash crops for experts. Indeed, agriculture provided the main stimulus to our national economy growth these contributions of agriculture to the over shadowed all other economic sector in the early 1960s. However, the reverse was the ease of agriculture in the societies when it place to the GDP element to only 304 by 1974 due to partly to the persistent neglect of the agricultural sector it self. In terms of the sector. It can therefore be said that the Nigeria economy has undergone structural changes in the three and half decades from predominantly agricultural economy in the 1960s to an economy mainly reliant on oil from the mind 1970s. The increased earning that is associated with the demand of Nigeria oil was not fully internalized into the economics system. The result was that, the consumption pattern because largely impart – oriented inability to rationalize imports when the ail boom gave way to oil glut which led to the emergence of trade areas. A growing debt burden also surfaced in he early 1980s as a result of jumbo loan contracted from the international capital market.
More so, the pursuit of an own valued exchange rate policy, the subsequent relegation of agricultural sector to the back ground heavy public sector spending and the huge debt over-hang all combined to create distortions consumption and payment pattern.
The sleep declined in oil earning in the 1980s necessitated a policy redirection aimed at realignment the domestic production with the local resources base. To this end, central bank of Nigeria consequently called for bidden for purpose of selling their banks, this was done after the option of merging their banks through intensive management board had failed to yield positive results. It should be noted that the potential investor must posses adequate financial and managerial knowledge to allow reoccurrence of part mistakes. However, the financial position of these banks deteriorated to the extent that the expected ….. were s.. of putting their hard earned resources into these banks. This prompted the withdrawal of licenses of 26 (13 commercial banks and merchant banks) by the CBN on January 16th 1998. With the collapse of such number of banks and the security and depositors, the central banks of Nigeria made it mandatory for banks of Nigeria made it mandatory for banks to raise their capital base to N25 billion on a before the end of December 2005. This created room fro mergers and acquisition amongst as this was a good option to sanitize the banking industries and restore confidential and depositor. Banks that failed to recapitalize were stated for liquidation. The choice of united bank for Africa (UBA) plc was not an accident; the bank is one of the Nigeria top three commercial banks Ltd. Established in 1961 by the constitution of five international banks to take over the banking business carried on in Nigeria since 1949 by British and French banks ltd. United Bank for African (UBA) Ltd. United bank for Africa (UBA) merged with standard trust Nigeria to meet the 25 billion and 429 branches, strategically spread all over Nigeria. The bank has recorded an impressure growth rate. UBA plc is active in all aspects of commercial banking and provides international banking, trusteeship, share registration, corporate financing and computer services through specialized division and subsidiaries. And aggressive business promotion strategy couple with a willingness to innovate has earned the bank an enviable position in the banking industry. UBA is strongly committed to its social responsibilities and identifies with the commerce in which is represented.
1.2 STATEMENT OF THE PROBLEMS Commercial banks in Nigeria undergo some problems which serve as hindrance to their rates in ensuring economic development to the economy of Nigeria. Some of these problems were indentified in the course of study. 1. The tedious procedures usually associated with opening of bank account and granting of bank facilities 2. The problems of low capital base on Nigerian commercial banks 3. The problem of easy access to bank loans.
If the above stated problems are properly tackled, commercial banks would be able to play major roles in ensuring economic development in Nigeria. Beside, several studies have been undertaken to investigate the role of impact of commercial banks to economic development in Nigeria, but only few have studied commercial bank loans, interest rate and gross fixed capital formation as micro economic development in Nigeria.
1.3 OBJECTIVE OF THE STUDY The main objective of this study is to examine the impact of commercial banks to economic development in Nigeria specifically however, the research generally aim at: 1. Econometrically determine the impact of commercial bank loans to preferred sectors 2. To identify the constraints towards granting of loans and advances 3. To examine the impact of commercial bank loans to economic development in Nigeria.
1.4 RESEARCH QUESTION The following question will guide the study. 1. Does commercial banks contribute in the three care sector of the economy with regard to agriculture, manufacturing and mineral production 2. How has contribution of commercial banks in any way led to increase in economic growth using gross domestic product GDP has proxy to economic growth? 3. How has the step taken by the federal government to resolve the under capitalization of commercial banking been a solution to the problems? 4. What are the constraints towards granting of loans and advances?
1.5 RESEARCH HYPOTHESIS Ho: Commercial banks do not significantly impact on the economy Hi: Commercial banks impact significantly on the Nigerian economy?
1.6 SIGNIFICANCE OF THE STUDY The out come of the research project will be of great benefit to the managers of the economy. By identifying strengths and weaknesses of commercial banks, policy formation can be made in future by drawing from the research outcome. More importantly, the following set of individuals will appreciate the research out come in there decision making exercise. These individuals includes; Bakers, policy formulators, financial analysts, investors and general banking public. The banker will find this research work sectors of the economy, areas of weakness identified will be concentrated upon for adequate corrective measure to be taken. Also by knowing what their roles and what the public expects from them, the bankers are better positioned in carrying out there role effectively.
The financial analyst will fine interest in the outcome of the research project work. It will go a long way to adding to their knowledge when will be of great importance in the exercise of their responsibility of giving professional advices to their client.
On a personal note, the study would be an invaluable asset to this researcher as a progressive student of economics. Finally, future researchers both student and non-student would also find this study indispensable. 1.7 SCOPE OF THE STUDY This research covers the period of 1980-2010 and areas like the total loan and GDP. Moreover, the study is limited to the Nigerian economy. It is equally limited by time and limited source of data. There are time also constraints in the process of carrying out the research due to inaccuracy of data. It is sometime impossible to under estimate or overestimate.
This study is organized in five chapters and data analyzed from empirical stand point. The first chapter talks on introduction of the commercial banking, its impact on Nigeria economy, chapter is the review of related literature, chapter three is the research design and methodology. Chapter four is on data presentation analysis and interpretation. And chapter five is on summary of outcome conclusion and recommendations.
1.8 LIMITATION OF THE STUDY A study of this nature ought to have compelled the researcher to visit major commercial cities and towns in collecting data. Thus, the researcher is very much aware of were he intends to do so, constraint ranging from adequate finance to time factor poses a big treat. Even when the problem of distance and give are solved by limiting the scope of the study to a particular town, there is also the problem of reluctance to giving out information by the banks. This could be due to the high level of secrecy being observed by these establishment as a result of there limitation therefore the researcher has been compelled to study commercial banks within a town with a particular interest in United bank for Africa (UBA) Plc.
1.9 ASSUMPTIONS i. That the data collected from CBN reports and statistical bulletin is reliable because CBN is a highly placed body which documents are relied upon ii. That the information given by the website are correct.
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