THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE 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 guarantee 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.

Commercial banks are financial institutions that deal with money and credit and also receive deposits from the public and organizations; 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 profits by trading in money. They differ from other banking financial institutions because they honour cheques drawn by their customers on their demand deposit.

The role of commercial banks in transforming the economic framework of Nigeria cannot be over-emphasized.  In effect, they give out loans and advances, thereby providing short terms and medium term capital for investors.  The loans and advances may be in the form of direct loans, overdrafts or by the discounting of bills.  With the amount borrowed, investors could finance various projects in the areas of industry, agriculture and commerce. This therefore, helps to speed-up economic growth. Finally, commercial banks constitute the heart of any banking system. They are involved in general banking services to their customers and also play various roles in ensuring economic growth in Nigeria economy.

Consequently, in-depth investigations were conducted in the following:

(1)        Volume of loans given by commercial banks to economic sectors in Nigeria.

(2)        In-depth analysis of the problems of economic growth in Nigeria economy.

(3)        Suggestions on how to alleviate some of the problems in order to achieve the derived objectives.

1.2      STATEMENT OF THE PROBLEM

Commercial banks in Nigeria undergo some problems which serve as a hinderance to their roles in ensuring economic growth to the economy of Nigeria.  Some of such problems are listed below:

(1)        The tedious procedures usually associated with opening of bank accounts and granting of bank facilities.

(2)        The problem of low capital base on Nigeria commercial banks.

(3)        The problem of easy access to bank services.

If the above stated problems are properly tackled, commercial banks would be able to play major roles in ensuring economic growth in Nigeria.

        Besides, several studies have been undertaken to investigate the roles of commercial banks to economic growth in Nigeria, but only few have studied commercial bank loans, interest rate, and gross fixed capital formation as macro-economic variables in determining economic growth in Nigeria.

1.3 OBJECTIVES OF THE STUDY

The main objective of this study is to examine the role of commercial banks in economic growth in Nigeria. Specifically, however, the research generally aims at:

(1)    Econometrically determine the contribution of commercial bank loans to preferred sectors.

(2)    Identifying of the constraints toward the granting of loans and advances.

(3)    Examine the impact of commercial bank loans to economic growth in Nigeria.

1.4   RESEARCH QUESTIONS

The research is guided by the following questions:

(1)        What are the impacts of commercial bank loans to economic growth in Nigeria?

(2)        What are the constraints towards granting of loans and advances?

(3)        What is the contribution of commercial bank loans to preferred sectors of the economy?

1.5   RESEARCH HYPOTHESIS

Null Hypothesis:  The activities of commercial banks have no significant impact to the growth and development of the economy.

Alternative Hypothesis: The activities of commercial banks do have a significant impact to the growth and development of the economy.

1.6 SIGNIFICANCE OF THE STUDY

The study is hoped to add to whatever that is already known in terms of the problems of funding of economic sectors in the area of the study. Thus, it will be of immense help to the commercial banks in Nigeria.

        On a personal note, this study would be an invaluable asset to this researcher as a progressive student of economics. Finally, Future researchers both students and non-students would also find this study indispensable.

1.7      SCOPE AND LIMITATIONS OF THE STUDY

This research covers the periods between 1980 – 2008. Moreover, the study is limited to the Nigerian economy. It is equally limited by time and limited sources of data. There are time also constraints in the process of carrying out the research due to inaccuracy of data. It is sometimes impossible to underestimate or overestimate.