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Abstract
The study examined the bank credit and the manufacturing sub-sector. The main objective of the study is to analyse the relationship between bank loans and the manufacturing sector output, to analyse the relationship between total commercial bank loans and manufacturing sector output and To analyse the relationship between commercial bank prime rate and the manufacturing sector output. Thus, the population of the study was base on bank credit and the manufacturing sub-sector. Which include gross domestic product and manufacturing sector output rate. The study base it analysis on bank credit and the manufacturing sub-sector. The source of information was the secondary source which was derive from central bank statistical bulletin 2018. The method for data analysis used is the multiple regression. The finding of this study revealed that there is significant positive relationship between bank credit and the manufacturing sub-sector It is therefore recommended that government should endeavor to ensure that there is adequate and sufficient credit allocated to the manufacturing sector in Nigeria with reasonable or affording leading rate. This will enable the manufacturing sector in Nigeria to curve, which is full capacity,. In the long run it will lead to development of the Nigerian economy, through employment generation, innovation competition, economic dynamism and promotion of indigenous technology, for Nigeria to meet it millennium development goals and objectives. It should be depending more on products and services produced within her boundaries; hence the need to encourage the manufacturing sector. It will give her the privileges of enjoying favourable balance of payments, as well as favourable terms of trade, which are the fundamentals for economic growth and development in the 21st century and Priority attention in terms of credit allocation be given to real sector probably by reintroducing the sectoral credit allocation policy.
Table of Contents
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Abstract vi
Table of Contents vii
List of Tables ix
CHAPTER ONE: INTRODUCTION 1
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 3
1.3 OBJECTIVE OF THE STUDY 5
1.4 RESEARCH QUESTIONS 6
1.5 RESEARCH HYPOTHESIS 6
1.6 SIGNIFICANT OF THE STUDY 7
1.7 SCOPE OF THE STUDY 8
1.8 ORGANISATION OF THE STUDY 9
1.9 DEFINITION OF TERMS 10
CHAPTER TWO: LITERATURE REVIEW 12
2.1 CONCEPTUAL REVIEW 12
2.2 THEORETICAL REVIEW 14
MULTIPLE LENDING THEORY 15
THE SIGNALING ARGUMENT THEORY 15
2.3 EMPIRICAL REVIEW 18
CHAPTER THREE: RESEARCH METHODOLOGY 25
3.1 RESEARCH DESIGN 25
3.2 METHOD OF DATA COLLECTION 25
3.3 DATA ANALYSIS TECHNIQUE 26
3.4 MEASUREMENT OF VARIABLES 26
3.5 MODEL SPECIFICATION 27
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS 28
4.1 Data Presentation and analysis 28
CHAPTER FIVE: SUMMARY CONCLUSION AND RECOMMENDETIONS 36
5.1 SUMMARY 36
5.2 RECOMMEDATIONS 37
5.3 CONCLUSION 38
REFERENCES 40
APPENDIX 42
List of Tables
Table 4.1 Ordinary Least Square OLS result 29
Table 4.2 Unit Root Result for MSP 31
Table 4.3 Unit Root Result for CLM Level 32
Table 4.4 Unit Root Result for CLMS at 1st Difference 33
Table 4.5 Cointegration Test Result 34
CHAPTER ONE:
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The manufacturing sector plays important roles in modern economy and has many dynamics benefits crucial for economic transformation. In a typical advanced economy, the manufacturing sector is a leading sector in many respects. It is an avenue for increasing productivity related to impart replacement and expansion creating foreign exchange earnings capacity and raging employment and for capital income which causes unique consumption pattern.
Further, it creates investment capital at a faster rate than any other sector of the economy while promoting wider and more effective linkage among different sectors. In terms of contribution to the Gross Domestic Product (GDP), the manufacturing sector is dominant and it has been overtaken to the service sector in a number of organization for economic cooperation and development (DECD) countries (Anyawu, 2000).
Before independence, Agriculture products dominated Nigeria economy and accounted for the major share of its foreign earnings. Initially inadequate capital investment permitted only modest expansion of manufacturing activities against this background, industrialization involves extensive technology based development of the productive (manufacturing) system of an economy. Thus, the development of the industrial sector represents the deliberate and sustained application and combination of suitable technologies, management technologies and other sources to move the economy from the traditional law level of production to a more automated and efficient system of mass production of goods and services.
In recognitions of this potential role of the sector, successive government in Nigeria has continued to articulate policy measure and programme to achieve industrial growth incentive and adequate finance. The central goal of government policy is to foster growth in the manufacturing sector over the years, and largely in response to some of the previous policy strategies, the main feature of the Nigerian manufacturing sector is demerged. The role of bank creditor in the growth of manufacturing sector cannot be over emphasized, for instance, the federal government’s appropriation bill for the year 2005 has as on its broad policy objectives to achieve a high economic growth rate i.e. GDP of at least 5% through a better mobilization and product used for economic resources. This objectives is not achievable without the significant levels of resources from the financial sector being mobilized and deployed to finance manufacturing expansion and growth. Banks have to be effective intermediaries for mobilizing and channel credit to the productive sector of the economy specially the manufacturing sector of real sector.
Therefore, this work is aimed at investigating the impact of commercial bank lending on manufacturing sector in Nigeria.
1.2 STATEMENT OF THE PROBLEM
There is no gain say that the Nigerian government over decades is ranked among the top ten countries of the world that depends on foreign made goods that is, it’s ratio of export to import is nothing to write home above commentaries and available statistics have shown that the country is depending more on import. This is a clear demonstration that perhaps our sluggish growth pace of the economy is because the country’s productive capacity is low. The productive capacity of a country is a major determinant of its growth potentials.
In light of the above, therefore this work intends to examine the extent to which commercial banks credits has favoured or otherwise the real sector of the economy. This is conceived because of the manufacturing sector of the economy is being supported with bank credit it will significantly improve the nation’s productive capacity. The manufacturing sector of any economy is an important sector of the economy whose activities is capable, hence most government formulate and adopt policies aimed at channeling sufficient find to the sector. In Nigeria, this was the case arising the sectoral allocation policy before it’s revocation/suspension by the Babangida’s regime in 1991.
In influence of credit advanced to the real sector of the economy has received little internet from researchers. Banks have to be effective intermediaries for mobilizing and channeling deposits to the productive sector of the economy especially the manufacturing sector. However, in spite of continuous policy strategy to attract credits to the manufacturing sector, the Nigerian manufacturing enterprises have remain unattractive for deposit money bank credit at low lending rate (Ogar, Nkamare, and Effiong, 2014). For instance, as indicated in the central bank of Nigeria (CBN report 2005), almost throughout the regulatory era, commercial banks loans and advances to the manufacturing sector deviated persistently from prescribed minimal. Accordingly, the manufacturing sector in Nigeria is faced with the problem of accessibility of funds for productive investment, hence its poor performance in recent years (Edirisuriya, 2008).
Also, given the present government’s policy twist of diversifying the economy away from oil towards non-oil in which manufacturing sector is central on one hand, and on the other hand increasing the rates of interest on loans as signaled by the recent hike in the MPR from 12 to 14, calls for the investigation of the impact of bank credit which is largely determined by the prevailing interest rate on the manufacturing sector in Nigeria. It is therefore necessary to undertake a critical study of the impact of commercial bank lending on the manufacturing sector of Nigeria economy.
1.3 OBJECTIVE OF THE STUDY
The main objective of the study is to analyse the relationship between commercial banks’ credit and the manufacturing sector in Nigeria. However, the specific objectives would include to analyses;
i. To analyse the relationship between bank loans and the manufacturing sector output.
1.4 RESEARCH QUESTIONS
The following research questions are raised in this work.
I. Is there any relationship between commercial bank credit and manufacturing sector output.?
1.5 RESEARCH HYPOTHESIS
This research work will be guided with the following hypotheses.
Ho1: Bank credit does not have any significant relationship on the output of the manufacturing sector in Nigeria.
1.6 SIGNIFICANT OF THE STUDY
The study is expected to offer significance to the government and financial institutions to ascertain the source of solution to the problem of manufacturing sector development due to lack of capital. It will also enable manufacturing companies operating in the country to avail themselves of the financing opportunities available so that failure of industries can be minimized.
The study will also provide useful information that will help in policy formation regarding industries financing in Nigeria. It will also enlighten the central bank of Nigeria to know whether to increase or sustain the allocation percentage rate to the manufacturing sector.
i. To researchers, the study will add to literature on the study variables to future researchers.
ii. To analyst; this study will be of immense benefit to economic analyst who would want to trace the impact of commercial bank lending on the manufacturing sector in Nigeria.
iii. To policy makers; it will provide a guide to operators in the banking industry and CBN on the proper frame to adopt towards commercial bank lending with the view of enhancing growth in the manufacturing sector.
Finally, the study will be of immense use to bank managers and banking experts who want some appropriate solutions to some of their banking problems.
1.7 SCOPE OF THE STUDY
The study is delimited under the following heading; content scope, geographical scope and unit of analysis.
Content scope: the content scope of this study is to analyse the relationship between commercial bank’s credit and the manufacturing sector in Nigeria. Geographical scope: this study is delimited to the Nigeria banking sector with reference to the manufacturing sector.
Unit of analysis: the unit of analysis of the study involves secondary data gotten from CBN bulletin.
Every research study has certain limitations which fall short of the ideas which the researcher has established or recognized given the critical and sensitive of the topic, under this study, the researcher encountered a number of problems which hindered the researcher work. Most importantly, the time frame within which the work was expected to be completed was too short. Besides, the researcher was not financially buoyant enough to carry out all the investigation deemed necessary to be carried out.
Finally, the availability of current literature for the research work also gave it’s own hindrance as the subject matter have been a matter of public discussion without proper literature to support the various argument made on it.
1.8 ORGANISATION OF THE STUDY
This work is presented in five chapters; chapter one; introduction seeks to bring to fore the antecedents that preceded the current state of bank credit, the section introduces the topic under study. The objectives as well as research questions, research hypotheses, significance, scope/limitation of the study are outlined in this chapter.
Chapter two; literature review, in this chapter various literatures of other scholars in line with this study is review, this chapter discusses the concepts and theories relating to bank credit and the manufacturing sector, it also review empirical literatures of others authors.
Chapter three; Research Methodology, this chapter discuss the research design, method of data collection, data analysis technique and model specification. Chapter four; data presentation and analysis, this tells us how the data collected was presented, analysis and interpreted.
Chapter five; Summary, Conclusion and recommendations, in this chapter the findings of the results is being summarize, conclude and make recommendations for policy makers, analyst, researchers and the government.
1.9 DEFINITION OF TERMS
Gross Domestic Product (GDP): It is one of the primary indicators used to gauge the health of a country’s economy. It is also a comparison to the previous quarter of a year.
Manufacturing Sector: This comprises of establishment engaged in the mechanical physical or chemical transformation of national subcutaneous or component into a new product.
Commercial banks: a commercial bank is a type of financial that accepts deposit offers checking account services, makes business, personal and mortgage loans and offer basic financial product like certificate of deposit (CDs) and savings accounts to individuals and small business.
Per capita income: is a measure of the amount of money earned per-person in a certain area. It can apply to the average per-person income for a city, region or country and is used as a means of evaluating the living conditions and quantity of life in different areas. It can be calculated for a country by dividing the country’s national income by its population.
Loan: this is an amount of money given by on a party (under) to another (borrower) at a determinable future payment date with internet.
Bank credit: this is the total amount of credit available to a business or individual from a banking institution. It consists of the total amount of combined funds that financial institutions provide to an individual or business.
Bank loan: a bank loan it the most common form of loan capital for a business. A bank loan provides medium or long-term finance. The bank sets the fixed period over which the loan is provided (e.g. 3, 5 or 10 years). The rate of interest and the timing and amount of repayment.
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