Complete Material Cost #3,000
Order for Complete Material now
Abstract
The study examined the impact of bank lending on economic growth in Nigeria. The main objective of the study is to investigate the effect of bank lending on economic growth in Nigeria and investigate whether it is possible to use bank lending as the means of long-term economic growth in Nigeria. Thus, the population of the study was base on bank lending on economic growth in Nigeria which include aggregate bank lending and size of financial intermediaries. The sample size for the study was base on commercial banks. 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 commercial bank lending and gross domestic product, this implies that, there is an increase in bank lending and will bring about increase in national output. More so, the size of financial institutions also have significant positive relationship with gross domestic product, in line with prior expectation. It is therefore recommended that central bank of Nigeria should check mate banks from possessing excess liquidity that would ensure the prevention of inflation in the economy, there should be a regulatory frame work that will enable the financial institutions to channel their resources to the most viable sector of the economy so as to increase the level of economic development and Financial institutions, either government owned or private owned, should give more credits to the private sector with bearable interest rate. This would increase investment in the Nigerian economy.
Table of Contents
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Abstract vi
Table of Contents vii
CHAPTER ONE: INTRODUCTION 1
1.1 Background to the Study 1
1.2 Statement of the Problem 3
1.3 Objective of the Study 4
1.4 Research Questions 4
1.5 Research Hypothesis 4
1.6 Significance of the Study 4
1.7 Scope and Limitation of the Study 5
1.8 Organization of the Study 5
1.9 Definition of Terms 5
CHAPTER TWO: REVIEW OF RELATED LITERATURE 7
2.0 Introduction 7
2.1 Conceptual Framework 7
2.1.1 Development of the Banking Sector in Nigeria 7
2.1.2 Concept of Bank Lending 11
2.1.3 Dimensions of Bank Lending 12
2.1.4 Concept of Economic Growth 13
2.1.5 Measures of Economic Growth 15
2.1.6 Bank Lending and Economic growth 15
2.2 Theoretical Review 17
2.2.1 Wicksell Theory of Lending and Economic Growth 17
2.2.2 Cobb-Douglas Theory of Economic Growth 18
2.3 Empirical Review 19
2.4 Summary of Literature review 24
CHAPTER 3: RESEARCH METHODOLOGY 26
3.1 Introduction 26
3.2 Research Design 26
3.3 Population of the study 27
3.4 Data Collection Method 27
3.5 Model Specification 27
3.5 Data Analysis Techniques 28
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS 29
4.1 Data Presentation 29
4.2 Data Analysis 30
4.3 Descriptive Statistics 30
4.4 Correlation Statistics 31
4.5 Least Square Regression Test 31
4.6 Discussion of Findings 32
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATION 34
5.1Summary of Work 34
5.2 Conclusion 35
5.3 Recommendation 36
References 37
APPENDIX 42
List of Tables
Table 4.1: Bank Credit, Bank Size and GDP in Nigeria 29
Table 4.2 Descriptive Statistics 30
Table 4.3 Correlation Statistics 31
Table 4.4 Least Square Regression Test 32
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The economy requires credit for different purposes; one main purpose is to promote economic activities (Ndubuisi M. Nwaru and Okorontah, 2014). Credit fuels economic activities by allowing businesses to advance beyond their cash on hand, households to purchase homes without saving the entire cost in advance, and governments to smooth out their spending by mitigating the cyclical pattern of tax revenues and to invest in infrastructure projects. In the modern times, the banking system developed with the developing sector of trade and commerce. Today, there are different types of banks for different purposes. At every turn, the role of bank lending in economic growth has been mired in controversy.
A typical capitalist or mixed economy is made up of surplus and deficit units. In performing their primary function of intermediation, banks collect deposit from the surplus unit of the economy and lend it out to the deficit unit in form of loans and advances (Kalu, 2009). The role of the financial system in mobilizing and channeling of funds to the real sectors of the economy cannot be taken for granted. Sound financial system is recognized as a necessary and sufficient condition for rapid growth and development for every modern economy (Sanusi, 2012). The financial system consists of institutions like banks, insurance, stock market, and other financial institutions.
In Nigeria, the banking sector is an important part of the financial system. The banking sector dominates the Nigerian financial system as it accounts for about 90 % of the total assets in the system and about 65 % of market capitalization of the Nigeria Stock Exchange (Soludo, 2009a). However, the banking sector has not contributed significantly to the growth and development of Nigerian economy as expected. The poor performance of the sector has been attributed to numerous problems that faced the sector such as inadequate capital, high nonperforming assets which had led to frequent distress in the sector and collapse of some banks in the past (Sanusi, 2012).
If banks cannot grant loans to the deficit economic units within their immediate operational environment, the business sector will not grow, deposits will be limited and this will hinder the ability of banks to generate income (Galac, 2001: Honohan, 1997). For most banks, loanable funds account for about fifty percent or even more of their total assets and about half to two-thirds of their revenue (Udoka and Effiong, 2006). This made lending the first and most important function of banks. The function is considered important due to number of reasons. First, the general public or customers use lending in assessing banks stability. Banks that are willing and able to give out loans are considered more stable than those that mostly reject loans proposals of their customers.
Second, lending is regarded as part of legal requirement by the monetary authority, which may stipulate certain percentage of bank lending to some sectors like agriculture, small scale industries etc. Third, lending is use as tool in implementation of the monetary policies of government, which affects money supply and demand in the economy. Fourth, lending affects pattern of production, level of entrepreneurship and consequently, aggregate output and productivity. The last and the most important reason why the lending function of banks is crucial and important in every economy is that it is generally accepted that there is positive relationship between bank credit and economic growth (Oluitan, 2009) Economic growth entails positive change in the national income or the level of production of goods and services by a country over a certain period of time (Oluitan, 2009). Economic growth is measured in terms of the level of production within the economy, factor productivity, technological change, physical capital accumulation and real Gross Domestic Product, (GDP) (Odedokun 1998; Allen & Ndikumama 1998; King and Levine 1993).
Bank credit is recognized to be a causal factor for economic growth all over. Based on this fact, this research study intends to examine the relationship between bank lending and economic growth in Nigeria.
1.2 Statement of the Problem
The link between bank lending and economic growth has important policy implications for development strategies. Especially in the field of increasing the rate of economic growth in spite of the limited role of banking sector to control the money supply and its effects on the economy.
The poor performance of the sector has attributed to numerous problems that faced the sector such as inadequate capital, high nonperforming assets which have led to frequent distress in the sector and collapse of banks in the past.
The question if commercial bank lending incites growth in Nigeria is one that has not been previously addressed in a sufficient manner. It is well known that commercial bank lending in Nigeria is at an all time low and has not returned to the pre 1990s lending levels, (CBN 2012 statistics) making most Nigerian banks to be failing in their role of primary responsibility which is to lend to private sector businesses.
While most of the blame lies at the doorstep of commercial banks the Nigerian government also has a joint responsibility since it has failed to create enabling environment for productive commercial activities that have the capability to reduce the transaction cost associated with production making the business environment to be risky. A lot of macroeconomic variables are identified to be responsible for driving growth in the Nigeria economy among which is the cost of access to capital. It is against this backdrop that this study is carried out to investigate the impact of banks lending on the Nigeria economic growth from 2005 to 2017.
1.3 Objective of the Study
The aim of this study is to investigate the impact of commercial bank lending on economic growth in Nigeria. Other specific objectives are:
1. To investigate the effect of bank lending on economic growth in Nigeria.
2. Investigate whether it is possible to use bank lending as the means of long-term economic growth.
1.4 Research Questions
The study will be guided by the understated research questions.
1. What are the effects of bank lending on economic growth in Nigeria?
2. It is possible to use bank lending as the means of long-term economic growth?
1.5 Research Hypothesis
Based on the above, the understated hypothesis is proposed for this study as follows;
There seems to be no significant relationship between bank lending and economic growth in Nigeria.
1.6 Significance of the Study
This study will add to the stock of literature material in the department of banking finance that will be used for further research in other related areas.
It will also be of immense benefits to commercial banks in Nigeria, as it will afford them the opportunity of deciding on the line of products to market to avoid the issue of bank distress.
To the public and commercial bank customers it will give them sample knowledge on how to go about their borrowing.
1.7 Scope and Limitation of the Study
The research has to investigate the impact of commercial bank lending on economic growth in Nigeria. The study covers only commercial banks in Nigeria.
However, certain factor hinders the researcher form carrying out and in-depth research on the study. These factors are:
Fund: fund available is not enough to execute this work
Time: time expected to complete this work or study is too short, therefore different for completion.
1.8 Organization of the Study
This study is divided into five chapters; the first chapter provides the background of the study, statement, objectives, significance, scope and definition of terms. While chapter two contains the relevant literatures for the study.
Chapter three is concerned with the methodology employed in the study. Chapter four discuss about data presentation about analysis and finally chapter five talks about the summary, conclusion and recommendation in the study.
1.9 Definition of Terms
BANK: An organization to provide various financial services, for example keeping or lending money.
COMMERCIAL BANK: An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings and time deposit. These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System.
ECONOMIC GROWTH: A positive change in the level of production of goods and services by a country over a certain period of time. Nominal growth is defined as economic growth including inflation, while real growth is nominal growth minus inflation.
IMPACT: A noticeable effect on something.
LENDING: The act of giving someone money under an agreement to pay it later.
Complete Material Cost #3,000