THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF STUDY

Commercial banks play an important role in economic development of developing countries. Economic development involves investment in various sectors of the economy. The banks collect savings from the people and mobilize savings for investment in industrial project. The investors borrow from banks to finance the projects.  Special funds are provided to the investors for the  completion of projects. The bank provide a gurantee for industrial loan from international agencies. The foreign capital, flows to developing countries for investment in projects. Commercial banks are involved in the process of increasing the wealth of the economy, particularly the capital goods needed for raising productivity. The developed economies need the service of the banking system to enable the economy attain economic growth, while the developing economies need the service of banking system for sectorial development. The financial institution are therefore, capable of influencing the major saving propensities and opportunity. The need to achieve sustained economic growth within any economy can be possible admist strong financial institution and precisely within the existence of a virile banking system. Their activities must be such that are tailored to work in the congruence with government policies and programmes in a bid to attaining the desired macro-economic objectives as a nation. Schumpeter in 1934 observed that the commercial banking system was one of the key agent in the whole process of development. Generally commercial banks not only facilitates but speed up the process of economic development through making more funds available from resources mobilized.

The banking system is a catalyst and engine of growth that is responsible for being a lifewire to every sector of the economy. It is evident that no sector in the economy can flourish or prosper without the support and services of the banking sector, agricultural sector, manufacturing sector, mining or even services sector can’t do without banks. Commercial banks provide and encourage savings. The establishment of commercial bank especially in the rural areas makes savings possible, hence economic development is accelerated. Commercial banks provide capital needed for development. Deficit spender unit obtain medium and short term loans and overdraft from commercial banks to start a new industry or to engage in other development efforts. They engage in trade activities through making use of cheques and other financial instrument possible. They encourage investment, provide direct loans to the government and individuals for investment purposes. They provide managerial advices to small-scale industrialists who do not engage in the service of specialist. Commercial banks also render financial advice to their customers including to invest in. Commercial banks create money as an instrument to the apex bank for all its activities. Commercial banks help to enhance development of international trade, these include acting as referees to importers, providing travellers cheque to those going abroad, opening letters of credit as well as providing credit for export. All these helps to promote international trade and relationship between nations, they provide backup liquidity to the economy. They are transmitters of monetary policy and they provide some “value added” from transfering funds from savers to borrowers and providing liquidity. The current credit crisis and the transatlantic mortage financial turmoil have questioned effectiveness of banks consolidation programme as a remedy for financial stabilty and monetary policy in correcting the defects in the financial sector for sustainable development. The consolidation of banks has been the major policy instrument being adopted in correcting deficiencies in the financial sector. The economic rationale for the domestic consolidation is indisputable, an early view of consolidation was that it makes banking more cost efficient because larger banks can eliminate excess capacity in areas like data processing, personnel marketing or overlapping networks. Cost efficiency also could increase if more efficient banks acquired less efficient ones. Consolidation is viewed as the reduction in the number of banks and other deposit taking institutions with a simultaneous increase in size and concentration of the consolidation entities in the sector. The driving forces in bank consolidation include better risk control through the creation of critical mass and economies of scale, advancement of marketing and product initiative improvements in the overall credit risk and technology exploitation. These drivers has lead to improved operational efficiencies and larger and better capitalized institutions.

TOPIC: THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH IN NIGERIA

Format: MS Word

Chapters: 1 - 5, Abstract, References, Questionnaire
Delivery: Email

Number of Pages: 60

Price: 3000 NGN

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