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The Determinants of Commercial Bank
Deposits in Nigeria
Chapter One
1.0 Introduction
1.1 Background to the Study
In a developing country like Nigeria,
the role of banks and other financial institutions cannot be over emphasized.
Banks play the middle-man role of channeling funds from the fund surplus
sectors to deficit sector of the economy which is of immense benefit to the
even growth of the economy. To achieve its objectives, the banking industry has
to develop well-articulated guidelines and policies geared towards effective
utilization of scarce funds. This research work setout to evaluate the
determinants of banks deposits in Nigeria. Bank deposits are accounting entries
showing the credit balance in favour of a customer. In other words, banks deposits
are funds (money) deposited with commercial banks with a view to earning some
interest and also for safe keep over a period of time. The origin of bank
deposits can be traced to the Bank of England (London) and the goldsmith who
because of the nature of their business, had facilities to store valuables. The
goldsmiths accepted deposits (gold) from merchants who had no safe place for
the safe keep of their valuables or money. Later, the receipts issued by
goldsmiths for deposit were used by the merchants as means of payments by
transferring the claim on the goldsmith to the holder of the receipt.
In 1844, the bank of England assumed the
monopoly of note issue. With this development, early bankers issued bank notes
of fixed denomination which were more widely acceptable. There came a point in
time when bankers began to lend money to their customers.
This was made possible by the fact that since
cash or piece of gold held by Mr. A was quite the same as the piece of gold
held by Mr. B, the deposits could be lent to other people before maturity when
the depositor could be repaid with new deposits from other customers. This
anonymity really helped in the development of the banking system. Consequently,
the increasing use of bank notes meant that fewer people would withdraw their
deposit in cash from the banks. Banks therefore found it safe to lend out, at
interest, some of the money deposited with them. When bankers found out that
lending out money proved to be a profitable business, they began to offer inducement
in form of interest to depositors in order to encourage people to increase
their deposits. Following this outcome, bankers began to lend out their own
notes and with experience, they were able to know how much cash they ought to
keep in their vault to meet customer’s withdrawal demands. They later realized
that not all customers would come to withdraw their deposits, and so they can
predict the margin of safety (percentage of cash to deposit) in order to avoid
any friction in the process.
The Nigerian Enterprises Act of 1972 otherwise
known as the Indigenization Act was promulgated with the sole aim of
encouraging indigenous business ownership and control. One of the problems
envisaged in the course of implementing the Act was inadequate finance with
which to fund the businesses to be taken over from foreigners by indigenous
business men. The inability of individual business men to single-handedly
finance their business activities gave rise to the need for extension of credit
facilities through customers’ deposits by commercial banks.
Commercials banks as it were, perform
two basic functions namely; acceptance of deposit from the public and lending
out money deposited to the public. The
deposit function according to Aladeje Ojo (1982) includes savings deposits,
current deposits and time deposits.
Savings deposit are deposits of
individual institutions, cooperate bodies and government who want to save on
regular basis operated through the use of passbooks, withdrawal slips, and
identity cards. Banks currently pay
interest of between 2% - 5% annually on this account in Nigeria.
Current or demand deposits are operated with
the use of cheques. The deposits are payable on demand or to the order of the
customer without giving any notice of withdrawal. Customers that operate this
account have access to credit facilities like loans and overdrafts. However,
the customer is made to pay for the services rendered by the banks to them in
the form of commission on turn over (COT).
Time deposits are equally operated by individuals,
institutions, firms and government. Time
deposits attract fixed interest for customers because the money is deposited
for a fixed time period.
The Determinants of Commercial Bank Deposits in Nigeria
NB: The Complete Thesis is well written and ready to use.
