THE CONTRIBUTION OF THE BANKING INDUSTRY TO THE DEVELOPMENT OF NIGERIA ECONOMY

THE CONTRIBUTION OF THE BANKING INDUSTRY TO THE DEVELOPMENT OF NIGERIA ECONOMY

(A CASE STUDY OF UNITED BANK FOR AFRICA NASARAWA BRANCH)

ABSTRACT

The study examines the contribution of the banking industry to the development of Nigeria economy. Specifically, the study seeks to examine the relationship between economic growth and the level of financial intermediation and to determine the impact of interest rate on economic development of Nigeria. The study adopts survey method in order to obtain genuine information needed for the study. The research also make use of questionnaire as the instrument for data collection while the data collected was analyzed using tables, percentage and hypothesis were tested using Chi-Square. The findings of the study shows that there is a significant relationship between economic growth and the level of financial intermediation by the banks, and that banking industry interest rate have significant impact on economic development of Nigeria. Finally, the study recommend that the government should provide enabling environment for the banking industry to enable them carryout their financial intermediation responsibility very well and that the regulatory body responsible for regulating the interest rate charged by the bank should ensure that the banks do not charge too much or higher interest rates on loans.

CHAPTER ONE

INTRODUCTION

1. Background of the Study

The Nigeria economy revolves round the hub of an active banking industry which consists of financial institutions, financial markets, financial instruments and improved rules and regulations that facilitate and regulate the flow of funds from surplus units to the deficit units. The banking industry as a corporate entity that deals in financial claims, is controlled by the government through various regulatory bodies such as the CBN, NDIC and the SEC who supervise their activities. In Nigeria, the financial institution engages in mobilizing funds from the surplus sector of the economy and lends such funds to the deficit sector. In this way, it intermediates between the people with surplus funds and those in deficit and because of this vital role, it is called a financial intermediary (Ogboghro, 2013).

One of the key functions of Banking industry is financial intermediation and issuing of loan facilities to governments, organizations and virtually every sector of the economy. These economic sectors range from the manufacturing, agriculture, services, construction, transport, mining, oil and gas among others (Ugiagbe & Egbeonu, 2016). Obviously, both the public and private sectors of any economy need banking sector credits for more productive activities as prerequisites for enhancing a nation’s overall performance.

Economic growth or development is a sustainable increase in the value of goods and services in an economy within a given period of time. This could be measured by nominal gross domestic product, real gross domestic product, gross domestic product per capita or gross domestic product growth rate. The nominal gross domestic product is the total value of goods and services produced in an economy without adjusting for an inflation rate. A real gross domestic product is the total value of goods and services produced in an economy after adjusting for an inflation rate (Ugiagbe & Egbeonu, 2016).

Lucas (2018) noted that the development of any economy is greatly enhanced through a vibrant banking industry which serves the function of mobilizing savings from small and large savers in the economy and channels same to the fund users for investment purposes. All the sector of the economy needs funds to remain in operation and contribute to the nation’s overall performance. For it to survive and perform effectively there must be an investment which is synonymous with funding, hence the banking industry becomes a very relevant funnel. Soludo (2004) asserted that in Nigeria, deposit money banks are the largest financial intermediaries that transfer funds from surplus sector to the deficit sectors of the economy.

Banking industry provides credit facilities to individuals and companies, for one kind of economic activity or the other. It could be for industrialisation purpose, manufacturing, agricultural production, mining and quarrying, execution of contract among others. It is against this background that this study examines the contribution of the deposit money banks to the development of Nigeria Economy.

1. Statement of the Problem

Banking industry as the engine and prime mover of economy is supposed to be playing a leading role in empowering the other sectors of the economy especially the real sector to contribute to economic growth and development through improved GDP. Over the years, one of the major problems facing the banking industry in its intermediation role is how to ensure that loans/funds reach various sectors of the economy especially the real sectors and significantly impact on them in a positive way. Banking industry is expected to play a catalytic role of extending enough loans and advances to the real sectors in order to ensure their growth and contributions to the Gross Domestic Product (GDP) of the economy. The government has adopted so many policies to influence the flow of credits to the real sectors of the economy since early 1980s, but to the best of my knowledge, sufficient literature has not been in place as to assess the impact of such credits on the performance of the real sector’s GDP growth rate. The assessment is necessary because the conventional economic thinking relates banking sector performance to the extent to which it has inherent impacts on the transformation and improvement of the development of Nigeria economy. But unfortunately the roles of banks in the economic development have not been given adequate attention in the discussion of performance of GDP in Nigerian context. It is important to know the impact of the roles of banking industry on the development of Nigeria economy which can only be understood through a well-researched study, hence this study. In other words, there is insufficient empirical work on the contribution of the banking industry to the development of Nigeria economy.

1. Objective of the Study

The objective of this study is to examine the contribution of the banking industry to the development of Nigeria economy. The specific objectives are to:

1. To examine the relationship between economic growth and the level of financial intermediation.
2. To determine the impact of interest rate on economic development of Nigeria.

1. Research Questions
2. What is the relationship between economic growth and the level of financial intermediation?
3. What is the impact of interest rate on economic development of Nigeria?

1. Statement of Hypothesis

H₀₁: There are no significant relationship between economic growth and the level of financial intermediation.

H₀₂: The Banking industry interest rate has no significant impact on economic development of Nigeria.

1. Significance of the Study

The findings of this study on the contribution of the banking industry to the development of Nigeria Economy will of great significance or importance to the following:

1. Policy Makers and Regulators in the Industry:  To policy makers and regulators in the industry, it will present a scheme, through its analysis that could assist them in formulating policies that will not only positively impact on banks’ performances but also remain relevant in the economy of Nigeria.
2. Bankers: To bankers in general, it will expose the relationship existing between Deposit Money Banks and the Development of Nigeria Economy.
3. Academicians: In the academic arena, this study will prove to be significant in the following ways: v It will serve as a body of reserved work and knowledge to be referred to by researchers.  It will add value and enrich other literatures on banks’ performances in Nigeria and the world at large. It will suggest ways of enhancing the performance of the banking industry in Nigeria and the entire Nigerian economy. This will in turn, boost development positively which is usually affected by banks and their activities.

1. Scope of the Study

The scope of this study is limited to the examination of the contribution of the banking industry to the development of Nigeria Economy with particular reference to United Bank for Africa Nasarawa Branch.

1. Limitation of the Study

The major problems that tends to limited the scope of this study include the following:

• Time Constraint: The researchers had no enough time to carry out their research as have been planned because this project write up was coincided with other academic activities such as attending lectures, doing assignments and test
• Financial Constraint: Due to the economic situation that things are hard to come by, fund frustrated the researchers, but was able to take control of it.
• Materials: The researchers had no sufficient materials as to lay hands on books on the research topic. Also the First Bank Officials visited were reluctant initially to give useful information until a repeated visit.

1. Operational Definition of Terms
2. Bank: A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.
3. Banking Sector: The banking sector is an industry and a section of the economy devoted to the holding of financial assets for others and investing those financial assets as a leveraged way to create more wealth.
4. Deposit Money Banks: Deposit money banks are resident depository corporations and quasi-corporations which have any liabilities in the form of deposits payable on demand, transferable by cheque or otherwise usable for making payments.
5. Discount House: A discount house is a financial institution that acts as an intermediary between the Central Bank and the licensed banks in open market operation transactions and other eligible securities. It also facilitates the issue and sale of short term Government securities and other short term commercial bills.
6. Economy: Economy is the wealth and resources of a country or region especially in terms of the production and consumption of goods and services.
7. Economic Growth: – is an increase in the capacity of an economy to produce good and service compared from period of time to another.
8. Banking Development: – is a financial institution concerned with providing all types of financial assistance (medium as well as long term) to business unit in the form of loan under writing, investment and guarantee operations and promotional activities and economic development in general.
9. Financial Intermediation: – is a productive activity in which an institutional unit incurs liabilities on its own account for the purpose of acquiring financial assets by engaging in financial transaction on the market.
10. Gross Domestic Product (GDP):  Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
11. National Income: National income means the value of goods and services produced by a country during a financial year.