(+234)07060722008 
sales@graciousnaija.com
The Determinants of Commercial Bank
Deposits in Nigeria: A Study Of Union Bank Of Nigeria Plc
Chapter One
1.0 Introduction
1.1 Background of 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 set out 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.
1.2 Statement of the Problem
The study of bank deposits has been of
interest to many scholars, investors and government in particular. That is why
this work was conceived to take a critical look at the determinants of
commercial bank deposits in Nigeria with particular reference to Union Bank of
Nigeria Plc.
It is an established fact that the major
objectives of monetary and banking policies sector in any economy is to
mobilize domestic financial resources by financial intermediaries which
specialize in bridging the financial gap between savings surplus and savings
deficit sectors. In that process, banks facilitate the optimal allocation of
surplus funds.
But despite this intermediary function,
studies and facts over the years have revealed that a large quantum of money is
still trapped outside the banking sector. That is, a large number of people
still prefer to live the crude way of keeping money under the carpet and with a
number of non-formal financial institutions (such as thrift collectors, local
cooperatives and likes).
Against this background, this study seeks to find out how banks mobilize deposits by extending loans and advances to prospective investors as well as identifying the factors that influence bank deposits. Also, it is the interest of this research to examine how the interest rate influences bank deposits in advanced countries relative to the impact in developing countries. Studies like the determinants of structural shift in commercial bank deposits in Nigeria by A. Oyejide and A. Soyode (1998) has formed part of the major reference materials for this study. The study shall indicate how the flow of savings, and efficient credit mechanism coupled with a balanced range of viable investment options depend on the ability of commercial bank to mobilize deposits and to manage such deposits efficiently.
The Determinants of Commercial Bank Deposits in Nigeria: A Study Of Union Bank Of Nigeria Plc
NB: The Complete Thesis is well written and ready to use.
