THE CONTRIBUTION OF THE DEPOSIT MONEY BANKS (DMBS) TO THE DEVELOPMENT OF NIGERIA ECONOMY

THE CONTRIBUTION OF THE DEPOSIT MONEY BANKS (DMBS) TO THE DEVELOPMENT OF NIGERIA ECONOMY

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

ABSTRACT

This study examined the contribution of the Deposit Money Banks to the development of Nigeria economy. The specific objectives are to explore the relationship between economic growth and the level of financial intermediation.; Ascertain the impact of banks’ lending interest rate on economic growth through investment; identify the problems facing Deposit Money Banks in the discharge of their responsibilities. The research work adopted an expo facto research design. The data were analyzed using Ordinary Least Square (OLS). The findings of the study revealed that there is a mixed and positive relationship between interest rate spread and the growth of the Nigerian economic and that there are no problems facing Deposit Money Banks in the discharge of their responsibilities. The study finally recommends that government and other monetary authorities should use selective credit control measures in order to persuade banks to grant more loan and advances to the private sectors which are the engine of economic growth in Nigeria and that efforts should also be made by government to regulate the interest rate charged by banks on lending to businesses in Nigeria

CHAPTER ONE

INTRODUCTION

1. Background of the Study

Deposit money banks are financial institutions that played an intermediating role in financing industrial expansion in both developed and developing economies (Bada, 2017). Deposit money banks plays significant role in the finance mobilization and allocation of financial resources to productive investments and, in return, promote sustainable performance and economic development of Nigeria.

One of the key functions of deposit money banks 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).

Jhinghan (2015) defined gross domestic product per capita as the total value of goods and services produced in a country divided by the total population within a given period of time, while, gross domestic product growth rate is the rate of increase in the value of goods and services in an economy within a given period of time.

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 largesavers 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 andperform effectively there must be an investment which is synonymous with funding, hence the bankingindustry becomes a very relevant funnel. Soludo (2004) asserted that in Nigeria, deposit money banks arethe largest financial intermediaries that transfer funds from surplus sector to the deficit sectors of theeconomy.

The role of Deposit Money Banks financing is seen as a suitable source for the development of Nigeria economy to enableit to meet both new investment opportunities and operating expenses. Deposit money banks credit tomanufacturing sector serves as financial intermediation between the deficit and surplus units whichenhanced large-scale production and has a backward and forward effect on economic growth (Tokunbo, 2017).

Banking industry provides credit facilities to individuals and companies, for one kind of economic activityor the other. It could be for industrialisation purpose, manufacturing, agricultural production, mining andquarrying, 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

Deposit money banks credit allocations in Central Bank of Nigeria statistical bulletin 2018 indicated that the real sector in Nigeria is still finding it difficult to access financial resources especially from the deposit money banks that hold the larger part of total financial sector assets, also nominal interest rate is high which equally caused many investors to avoid bank-borrowing. Anyanwu (2017) argued that the low level of investments has hindered the growth of productivity in Nigeria. These low investments have accounted largely to banks’ unwillingness to make credits available to manufacturers, as a result of the mismatch between the short-term nature of deposit money banks’ financing and the medium to long-term nature of financing needed by manufacturing industries. It is on this note that this study seeks to examine the contribution of the deposit money banks (DBMs) to the development of Nigeria economy.

At this juncture, it might be necessary for one to ask if the financial market in Nigeria is underdeveloped to support the investment needed to boost economic growth. This may be partly due to dearth of empirical studies which will shed light on how deposit money banks can contribute meaningfully to economic growth in Nigeria. In particular, to contribute to economic growth the nexus between growth and investment, quality of service, savings mobilization must be clearly understood through an empirical investigation. This is so far lacking or insufficiently explored. In summary this study seek to find solution to the following problems:

1. Poor / Low credit allocation of fund by Deposit Money Banks to real sector in Nigeria.
2. High interest rate on loans granted to real sector in Nigeria by Deposit Money Banks
3. Problem of low investment as a result short terms loan granted by Money Deposit Banks against the long term loan required by the real sector of the economy.
   1. Objectives of the Study

The general objective of this study is to examine the contribution of the Deposit Money Banks to the development of Nigeria economy. The specific objectives are to:

1. To explore the relationship between economic growth and the level of financial intermediation.
2. Ascertain the impact of banks’ lending interest rate on economic growth through investment.
3. To identify the problems facing Deposit Money Banks in the discharge of their responsibilities.

1. Research Questions
2. What is the relationship between economic growth and the level of financial intermediation?
3. What is the impact of banks’ lending interest rate on economic growth through investment?
4. What are the problems facing Deposit Money Banks in the discharge of their responsibilities?

1. Statement of Hypothesis

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

H₀₂: The Deposit Money Banks’ lending interest rate has no significant impact on economic growth through investment.

H₀₃: There are the problems facing Deposit Money Banks in the discharge of their responsibilities.

1. Significance of the Study

This study through its findings and recommendations will be significant in the following ways.

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 contribution of the deposit money banks to the development of Nigeria Economy. Since the Nigeria banking industry is so large with over 20 banks, the scope of the study is further limited to United Bank for Africa Nasarawa Branch.

1. Limitation of the Study

This study was carried out successfully but while in the course of gathering data, the researchers were confronted with the mention and analyzed problems,

• 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 Bank Officials visited were reluctant initially to give useful information until a repeated visit.

1. Operational Definition of Terms

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.

Economic Growth: – is an increase in the capacity of an economy to produce good and service compared from period of time to another.

Banking: – 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.

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.

Interest Rate: An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed (called the principal sum).