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ABSTRACT
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. 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 banks in the past. This study is carried out to examine the impact commercial bank lending on economic growth in Nigeria. In addition, the objective of this study is to examine the impact of bank lending on economic growth in Nigeria for the period 2000 to 2013. This study relies purely on secondary data, and using multiple regression model, the study find out that bank lending accounts for about 83% variation in economic growth in Nigeria for the period under study. The study concludes that there is a statistically significant impact of commercial bank lending on economic growth in Nigeria. This, suggest that the performance of the Nigerian economy is greatly influence by bank lending. The study recommends that the federal government of Nigeria through the central bank of Nigeria (CBN) should strengthened the banking sector to ensure an improve credit flow to the activity sectors because of its strategic importance in creating and generating growth of the economy.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
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 units 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 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 Nigeria 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, deposit 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 functions of banks. The function is considered important due to number of reasons. First, the general public or customers used 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 toll 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).
1.2 STATEMENT OF THE PROBLEM
Over the years now the banking se tor has not contributed significantly to the growth and development of Nigerian economy as expected. 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.
Also, a premeds step taken by the CBN the 2005 recapitalization exercise during which the minimum capital base requirement of all commercial banks was raised to N25billion from N2billion this also posed a serious challenge to lending. It is against this backdrop that this study is carried out to investigate the impact of commercial banks lending on the Nigeria economic.
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:
- To verify the extent of the impact of commercial bank lending on the economic growth of Nigeria.
- To examine the relationship that exists between the commercial growth in Nigeria.
iii. To investigate the challenges commercial bank face in the economic growth of Nigeria.
- To make recommendation that will help solve the challenge facing commercial bank on the economic growth of Nigeria.
1.4 RESEARCH QUESTIONS
- To what extent does commercial bank lending would impact on the economic growth?
- Would there be any significant relationship between commercial bank lending and economic growth in Nigeria?
iii. Would improved commercial lending enhance the economic growth?
- To what would commercial bank lending affect the Nigerian economic growth?
1.5 RESEARCH HYPOTHESIS
Based on the above, the followings null hypothesis are proposed for this study as follows;
Ho1: Commercial bank lending has no significant relationship on economic growth.
Ho2: Commercial bank lending has positive significant relationship with economic growth
Ho3: There is no correlation between commercial bank lending and economic growth.
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 ORGANISATION 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 institution 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.