ASSESSMENT OF THE DETERMINANTS OF COMMERCIAL BANK DEPOSITS IN NIGERIA 1989-2007
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ASSESSMENT OF THE DETERMINANTS OF COMMERCIAL BANK DEPOSITS IN NIGERIA 1989-2007
CHAPITER 1
INTRODUCTION
BACKGROUND OF THE STUDY
It is impossible to exaggerate the significance of banks and other financial institutions in a growing nation like Nigeria. Banks serve as a middleman, transferring money from fund surplus to fund deficit sectors of the economy, which is very advantageous to the expansion of the economy.
The banking sector must establish clear standards and guidelines that maximise the use of its limited resources if it is to achieve its objectives. This study set out to identify the variables that affect bank deposits in Nigeria. Accounting entries known as bank deposits show the credit balance of a customer.
In other words, money deposited with commercial banks is meant to be kept there for long-term protection as well as income collection. The Bank of England (London) and goldsmiths, whose line of work required them to have facilities for storing treasures, are the originators of bank deposits.
Merchants without a safe place to keep their valuables or cash were allowed to deposit gold with the goldsmiths in exchange for their services.
Later, merchants exploited the deposit receipts that goldsmiths had given them as a form of payment, shifting the claim from the goldsmith to the person who had received the receipt.
The Bank of England assumed control of the note-issuing monopoly in 1844. Early bankers started issuing fixed-denomination bank notes as a result of this development, which were more widely recognised. Eventually, bankers started lending money to their clients.
This was made possible by the fact that the gold or cash held by Mr. A and Mr. B were identical, allowing the deposits to be lent to others until maturity, at which point the depositor might be compensated by fresh deposits from other clients. This secrecy was very helpful for the growth of the banking sector. Less people are withdrawing their deposits from banks in cash as a result of the greater use of bank notes.
Banks believed it was safe to lend a portion of the money placed with them at interest as a result. In order to attract depositors to raise their deposits, bankers started offering incentives in the form of interest after they realised that lending money was a profitable business.
After this development, bankers started to lend out their own notes, and with time and practise, they figured out how much money they needed to keep on hand in their safe to satisfy customer withdrawal requirements.
After seeing that not every client would show up to withdraw their deposits, they determined the margin of safety (% of cash to deposit) to reduce any delays.
The sole purpose of the Nigerian Enterprises Act of 1972, sometimes referred to as the Indigenization Act, was to encourage indigenous business ownership and governance.
A problem that was expected throughout the implementation of the Act was a lack of funding for the businesses that local businessmen would take over from foreigners.
Due to the challenges faced by individual businesspeople in raising capital on their own, commercial banks were forced to offer lending facilities based on consumer deposits.
In a nutshell, commercial banks fulfil two fundamental tasks: they accept public deposits and lend the money put by the public. Savings deposits, current deposits, and time deposits are all included in the deposit function, according to Aladeje Ojo (1982).
Passbooks, withdrawal slips, and identification cards can be used to open savings accounts for private organisations, cooperatives, and governments who want to save regularly. Banks in Nigeria currently pay interest on this account that ranges from 2% to 5% annually. To make current or demand deposits, cheques are utilised.
The deposits are payable immediately or to the customer’s order without the need for a notification of withdrawal. Customers who have this account can use credit services including overdrafts and loans. Customers, on the other hand, are compelled to pay commission on turnover (COT) for the services rendered by banks.
Time deposits are used by people, organisations, companies, and the government all. Consumers receive a fixed rate of interest because the money is deposited for a predetermined period of time.
1.2 STATEMENT OF THE PROBLEM
Studying bank deposits has attracted the attention of numerous scholars, investors, and governments. This study’s goal is to investigate the factors that influence commercial bank deposits in Nigeria with a particular emphasis on First Bank Nigeria Plc.
It is well known that one of the main objectives of the sector of monetary and banking policies in any economy is to mobilise domestic financial resources through financial intermediaries that are experts at bridging the gap between the surplus and deficit sectors of savings.
Banks help in this process by facilitating the most effective use of extra money. Investigations and facts have shown that a sizable sum of money is still stuck outside the banking system despite this middleman role.
That is to say, a significant portion of people continue to employ a range of non-traditional financial institutions (such as thrift collectors, neighbourhood cooperatives, and the like) and hide their money.
Given this, the goal of this study is to understand how banks mobilise deposits by making loans and advances to prospective investors as well as to identify the variables that affect bank deposits.
Additionally, it is pertinent to this study’s goals to compare how interest rates affect bank deposits in developed and developing nations. The primary reference materials for this study included studies like The Determinants of Structural Shift in Commercial Bank Deposits in Nigeria by A. Oyejide and A. Soyode (1998).
The study will show how the ability of commercial banks to mobilise deposits and to manage such deposits efficiently affects the flow of savings, an effective loan mechanism combined with a balanced variety of viable investment possibilities.
1.3 OBJECTIVES OF THE STUDY
The following are the study’s goals:
To determine whether bank deposits may promote development and economic prosperity.
To determine whether bank deposits in any way aid in the improvement of people’s lives and the growth of their economies.
To determine the elements influencing bank deposits in the Nigerian economy and to measure the established link.
1.4 RESEARCH QUESTIONS
This study is based on the following research question:
Can bank deposits help with economic development and growth?
Do bank deposits in any way support societal progress and economic growth?
What are the determinants of bank deposits in the Nigerian economy, and how do they measure the relationship?
1.4 SIGNIFRICANCE OF THE STUDY
Businesses in West Africa, particularly Nigeria, need to save aside a percentage of their excess revenues, according to Teriba (1980), because bank deposits haven’t always been adequately recognised. This has been attributed to a number of things, including people’s inability to read or write checks,
the prevalence of low-income residents, the fact that individuals only require a little amount of cash to make purchases of goods and services, and ultimately the absence of banks in rural areas. Due to the aforementioned, this study aims to inform businesses in Nigeria and elsewhere about the factors that affect bank deposits,
the advantages for both people and commercial banks, and finally, how to persuade the general public to save some of their money with commercial banks so that they can generate credit. Additionally, this study will broaden our understanding of bank deposits in Nigeria.
The information learned from this study is meant to improve the financial roles and investment analysis of banks and other financial institutions.
This study will add to the body of knowledge in this area and be a useful tool for academics, researchers, and students who may want to do further study on this or a related subject in the future.
1.5 SCOPE OF THE STUDY
This study aims to evaluate the factors that influence commercial bank deposits in Nigeria from 1989 to 2007, with a focus on determining the variables that affect bank deposits in the Nigerian economy and quantifying the established relationship.
It also examines whether bank deposits can improve economic growth and development, whether bank deposits contribute in any way to people’s well-being and economic development. However, First Bank of Gwarimkpa, Abuja and its staff would provide the information required for this study.
1.6 LIMITATIONS
The difficulties the researchers had while conducting the study were related to finances, poor supplies, and time constraints.
1.7 DEFINITION OF TERMS
Commercial Bank: A commercial bank is a type of financial organisation that accepts public deposits and disburses loans for consumer and business investment purposes.
Deposits: In the world of finance, a deposit is simply money kept at a bank. A deposit is a deal in which money is given to someone else to keep safe.
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