THE ROLE OF COMMERCIAL BANKS IN THE ECONOMIC DEVELOPMENT OF NIGERIA
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THE ROLE OF COMMERCIAL BANKS IN THE ECONOMIC DEVELOPMENT OF NIGERIA
ABSTRACT OF THE ROLE OF COMMERCIAL BANKS IN NIGERIA’S ECONOMIC DEVELOPMENT
It is possible to argue that the index for monitoring any rising
The extent to which an economy’s industries, both major and small, have grown over time is a measure of its advancement. None of these industries can thrive without the necessary financial backing from banking institutions.
The primary goal of this study is to assess the impact of commercial banks on the economic development of Nigeria utilising a population of sixty-five(65) employees from the United Bank for Africa Plc. A field survey study design and quota sampling techniques were used primarily.
The hypothesis was tested using Pearson chi-square statistics. Based on the hypothesis investigated, the data revealed that commercial banks had a major impact on Nigeria’s economic progress.
Because commercial banks have a substantial impact on economic growth, the government is advised to implement more advantageous policies that will further improve the responsibilities played by these commercial banks in ensuring full development of the federation’s rural and urban areas.
INTRODUCTION
BACKGROUND OF THE STUDY
Commercial banks play a significant part in emerging countries’ economic development. Economic development necessitates investment in a variety of economic sectors.
Banks collect and mobilise people’s funds for investment in industrial projects. To finance the projects, the investors borrow from banks.
Investors are given special cash to help them complete projects. The bank guarantees industrial loans from international agencies. Foreign capital flows to emerging countries for project investment.
Commercial banks are involved in the process of increasing the economy’s wealth, particularly the capital goods required for increased productivity.
The industrialised economies require the services of the banking system to achieve economic growth, but the emerging economies require the services of the banking system for sectoral development.
As a result, financial institutions have the ability to influence key saving proclivities and opportunities. The demand for continuous economic growth in every economy can be met by strong financial institutions and, more specifically, by the presence of a robust banking system.
Their operations must be adjusted to operate in tandem with government policies and programmes in order to achieve the intended macroeconomic goals as a nation.
In 1934, Schumpeter noticed that the commercial banking system was a vital agent in the entire growth process. Commercial banks, in general, not only enable but also accelerate the process of economic development by making more funds available from resources mobilised.
THE ROLE OF COMMERCIAL BANKS IN NIGERIA’S ECONOMIC GROWTH
The banking system is a growth accelerator and engine that serves as a lifeline to every sector of the economy. It is obvious that no area of the economy can develop or prosper without the help and services of the banking sector.
This includes the agriculture sector, manufacturing sector, mining sector, and even the services sector. Savings are provided and encouraged by commercial banks. The introduction of commercial banks, particularly in rural regions, allows for savings, which accelerates economic development.
Commercial banks give development funding. The deficit spender unit obtains medium and short-term loans and overdrafts from commercial banks in order to launch a new industry or engage in other development activities. They participate in commercial activity by using cheques and other financial instruments.
They promote investment by making direct loans to the government and people for the aim of investing. They give managerial advise to small-scale industrialists who do not use specialised services. Commercial banks also provide financial advise to their consumers, including investment recommendations.
Commercial banks create money as a tool for the central bank to use in all of its operations. Commercial banks contribute to the growth of international trade by acting as referees for importers, issuing travellers’ cheques to persons travelling abroad, creating letters of credit, and providing credit for export.
All of this promotes international trade and relationships across nations, and it provides backup liquidity to the economy. They are monetary policy transmitters, and they provide some “value added” by transferring cash from savers to borrowers and providing liquidity.
The current credit crisis and the transatlantic mortgage financial turbulence have called into question the usefulness of bank consolidation as a solution for financial stability and monetary policy in fixing financial sector flaws for long-term development. Bank consolidation has been the primary policy tool used to address problems in the financial sector.
The economic logic for domestic consolidation is undeniable; for example, an early view of consolidation was that it makes banking more cost efficient since larger banks may decrease surplus capacity in areas such as data processing, people marketing, or overlapping networks.
Cost efficiency may also improve if more efficient banks purchased less efficient ones. Consolidation is defined as a decrease in the number of banks and other deposit-taking institutions combined with a rise in the size and concentration of the sector’s consolidation entities.
Better risk control through the formation of critical mass and economies of scale, advancement of marketing and product innovation improvements in overall credit risk, and technological exploitation are the driving drivers in bank consolidation. These factors have resulted in increased operational efficiencies as well as larger and better capitalised institutions.
1.2 STATEMENT OF THE PROBLEM
Given the commercial banking industry’s economic trend, one might wonder what has hampered economic growth, despite banks being an important avenue for boosting economic growth through efficient and effective saving investment processes (financial intermediation) to stimulate investment and productive activities.
For the past three decades, the Nigerian economy has shown no signs of improvement. For example, the real GNP growth rate in 1995 was 2.8%, with negative statistics in years such as 1982, 0.3%, and so on, as shown in the CBN annual bulletin in 1986.
This demonstrates that the Nigerian economy is not one that can inspire confidence if financial institutions do not demonstrate a significant improvement in its economy, particularly in the new millennium.
1.To what extent does a commercial bank, as a financial intermediary, contribute to capital mobilisation for the country’s economic growth and development?
2.What is the role of commercial banks in the Nigerian economy in terms of mobilising funds for economic growth and development?
3.What are the issues that commercial banks face in terms of mobilising capital for economic growth and development?
1.3 OBJECTIVES OF THE STUDY
The following are the aims of this research project.
-Determine commercial banks’ contributions to positive economic growth and wealth creation.
-To investigate how commercial banks in Nigeria might be encouraged to play a more active role in money mobilisation for economic growth and development.
-To examine the limits and shortfalls confronting Nigerian commercial banks in terms of fund mobilisation for economic growth and development.
-Determine and assess the effects of various economic variables and factors on Nigeria’s real gross domestic product (GDP).
1.4 THE HYPOTHESIS STATEMENT
The following hypothesis will lead this research project.
Commercial banks make little contribution to capital mobilisation for the country’s economic growth and development.
Commercial bank variables such as lending deposits, actual investment, and interest rates, among others, have little effect on the Nigerian economy.
The commercial bank’s activities are unaffected by the limits on their activity.
1.5 SIGNIFICANCE OF THE STUDY
The study clarifies the actual contributions and activities of Nigerian commercial banks. It would also educate the public on the significance of commercial banks in Nigeria.
The report will be useful to policymakers and the federal government in adapting and implementing policy measures that will stimulate the economy through financial institutions.
It will also show the negative and positive aspects of the general public’s and bankers’ operations in order to make some corrections and modifications to help the economy.
1.6 LIMITATIONS OF THE STUDY
The study’s major aim is to describe in detail the function of commercial banks in fund mobilisation for industrial growth and development, but due to a lack of time for a simple and articulate analysis,
the study is limited to commercial banks particularly. The study is limited to the years 1975-2008, when the financial sector played a substantial role in the Nigerian economy.
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