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ROLE OF COMMERCIAL BANKS IN FINANCING BUILDING PROJECTS IN NIGERIA

ROLE OF COMMERCIAL BANKS IN FINANCING BUILDING PROJECTS IN NIGERIA

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ROLE OF COMMERCIAL BANKS IN FINANCING BUILDING PROJECTS IN NIGERIA

CHAPITRE ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

In any community, commercial banks play a vital role as financial middlemen for the general people. Commercial banks often have larger assets than any other financial organisation. In some circumstances, more than the central bank. Commercial banks, in addition to their many duties, promote growth and development.

Banks lend in a variety of economic sectors. When viewed through the lens of the building and construction industry, they contribute to investment, job creation, and, by extension, the process of infrastructure and economic expansion.

However, the researcher is investigating the activities of Nigerian commercial banks in financing building and construction projects (Farrel, 1985).

The building and construction industry in both developed and developing countries can be defined as the sector of the economy that transforms various resources into constructed facilities through planning, design, construction, maintenance and repair, and operation.

Residential and non-residential buildings, as well as heavy construction, are built, and these physical amenities play an important and visible part in the development process (Kheni et al., 2008).

Architects, engineers, management consultants, general contractors, heavy construction contractors, special trade contractors or subcontractors, and construction workers are among the major building industry participants, as are the owners, operators, and users of the constructed facility.

According to Olowo-okere (1985), (quoted in Eshofonie, 2008), most countries invest more than 55% of their gross domestic investment in physical facilities, including development infrastructure. The construction industry employs a wide range of workers, from highly skilled experts to unskilled labourers.

Physical construction activities alone provide between 2 and 6% of the nation’s employment demands, with subsidiary activities providing an additional 2 to 4% in developing countries, while in developed countries the figure rises to between 6 to 10% and 4 to 6% (Cockburn and Charles, 1970; Okeola, 2009).

According to Ibironke (2004) and Shittu and Shehu (2010), the building sector plays a critical role in meeting a wide range of physical, economic, and social needs, as well as contributing considerably to the achievement of many main national goals.

Commercial banks are a significant source of cash for many investors to finance construction and other real estate projects. Commercial banks are money-creating financial entities that serve three basic functions: accepting deposits, giving or lending money, and operating the payments and settlements system.

Finance is the most important issue in construction, real estate development, and investment. There is no denying that money is a vital aspect in real estate development and construction projects. The complexity of the project, as well as its capital-intensive nature, necessitate sufficient and adequate finance to make it a reality.

The terms and availability of the required cash determine the building’s operation trend. The availability and ease of access to substantial amounts of construction finance will undoubtedly accelerate all types of property development.

Building financing is concerned with the generation of funds for the construction of housing and office buildings, which are vital necessities in a developing country such as Nigeria. The advantages of increased building funding in Nigeria are numerous, and they include:

1. Increased rural and urban housing for Nigeria’s growing population.

2. The development of an industrial park to facilitate the localization of industries and trade.

3. An increase in job opportunities in the building business.

The developer faces significant challenges in obtaining funding for investment in building development. This is mostly due to economic insecurity and the strict controls applied by the majority of banking institutions. This is exacerbated by the fact that the interest rate structure has had a negative influence on supporting the development of the construction sector.

Because building development finance is a long-term enterprise, the high interest rate imposed on money provided for such development reasons has become necessary.

According to Hines (1995), six major building finance strategies are employed globally: joint venture, equity and debt financing, sale-lease back financing, advance payment of essential money, and sale of securities.

1.2 STATEMENT OF THE PROBLEM

Over the years, the government has been a prominent actor in Nigeria’s building and housing development, giving direct financing to builders for prior housing programmes. This was embedded in previous administrations’ housing policies,

but today, the dwindling nature of revenue accruing to the government, combined with gross mismanagement and misappropriation of public funds and revenue, has prevented the government from continuing to play her role as before (Nubi, 2000).

Mortgage finance institutions face a number of challenges, including a lack of awareness of the services provided by the institutions, bureaucracy in the granting and disbursement of mortgage loans to borrowers,

misunderstanding of banking terms by depositors and the general public as a result of the use of technical and professional terms that a layperson does not understand, and a problem with loan repayment by borrowers.

Commercial banks, as a prominent stakeholder in the financial sector, have funded the development of numerous sectors of the Nigerian economy. The researcher, on the other hand, will investigate the role of commercial banks in financing construction projects in Nigeria.

1.3 OBJECTIVES OF THE STUDY

The broad goal of this study is to examine the role of commercial banks in funding construction projects in Nigeria, and the specific goals are as follows:

1. To investigate the role of commercial banks in financing construction projects in Nigeria.

2. Determine the role of other mortgage banking institutions in financing Nigerian construction projects.

3. To identify the reasons limiting building project funding in Nigeria.

1.4 RESEARCH QUESTIONS

1. What role do commercial banks play in financing construction projects in Nigeria?

2. What are the roles of other mortgage financial institutions in financing Nigerian construction projects?

3. What are the factors restricting building project funding in Nigeria?

1.6 SIGNIFICANCE OF THE STUDY

The following are the implications of this research:

1. The purpose of this research is to educate the general public, real estate stakeholders, government, and policymakers on the importance of building development and housing, as well as the necessity for proper financing of the sector, taking into account the roles of commercial banks and other mortgage financial institutions.

2. The findings of this study will be beneficial for future research since they will be included in the empirical literature, serving as a guide for future researchers.

1.7 SCOPE AND LIMITATIONS OF STUDY

This study on the role of commercial banks in financing construction projects in Nigeria will cover all financial investments in building and real estate in Nigeria while taking into account commercial banks‘ contributions to the industry. It will also cover the activities of other mortgage financial institutions in Nigeria that finance building development.

STUDY LIMITATIONS

Financial constraint- A lack of funds tends to restrict the researcher’s efficiency in locating relevant materials, literature, or information, as well as in the data collection procedure (internet, questionnaire, and interview).

Time constraint- The researcher will conduct this investigation alongside other academic activities. As a result, the amount of time spent on research will be reduced.

1.8 DEFINITION OF TERMS

A structure with a roof and walls, such as a house or factory, is referred to as a building.

Provide funding for (a person or project).

Real estate is defined as land or buildings.

Commercial banks are financial institutions that accept deposits, provide business loans and auto loans, mortgage lending, and basic investment products such as savings accounts and certificates of deposit.

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