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IMPACT OF
COMMERCIAL BANK IN NIGERIA ECONOMY A CASE STUDY OF UNITED BANK OF AFRICAN (UBA)
CHAPTER ONE
INTRODUCTION
BACKGROUND
OF THE STUDY
The economy
of any country consist of sectors these sectors include industrial transport,
agricultural, mineral production, manufacturing sector etc.
All sectors
of the economy work in an inter-related and inter-dependent whole, therefore
any malfunction of one or more sectors of the economy automatically affect the
economy as a whole.
However,
different sectors have different roles in the same economy. This truth also
applied to banking sector in the Nigeria economy.
Banking
sector are more regulated in the Nigeria economy than other institution because
of the rate at financial intermediaries. It is vary difficult to see any
economy move forward without a sound financial sector capable of playing its
significant role in resources mobilization and allocation. As financial
intermediaries, banks sectors mobilize funds, from the surplus spending unit at
a cost for an- leading such funds to the direct spending unit at a price.
Commercial
banks are financial institutions that deal with money and credit and also
receive deposits from public and organisations. Some of which are repayable on
demand by cheque. Commercial banks are public limited companies owned by
shareholders. They operate in commercial basis, that is, they are out to
maximize profit by trading in money. They differ from other banking financial
institution because they honour cheques drawn by their customers on their
demand deposit.
The role of
commercial bank in transforming the economic framework of Nigeria cannot be
over-emphasized. In effect, they give out loans advances, thereby providing
shorter and medium term capital for investors.
The loan and
advances may be in the form of direct loans, overdrafts by the discounting at
bills. With the amount borrowed, investors could finance various project in the
areas of industry, agriculture and commerce. This therefore, helps to speed up
economic development. Finally, commercial banks constitute the heart of any
barking system. They are involved in general banking services to their
customers and also play various roles in ensuring economic development in
Nigeria economy.
Consequently,
in-depth investigations were conducted in the following:
a. Volume of loans given by commercial banks to
economic sector in Nigeria
b. In-depth analysis of the problem of economic
development in Nigeria economy.
c. Suggestions on how to alleviate some of the
problems in order to achieve the derived objectives.
Before and
immediately after Nigerian independence in 1960, agriculture played a crucial
rate in Nigeria economic development as a nation.
It provided
employment to millions of Nigerians and over 75 percent of the labour force
mostly from rural areas, were into the sector. During this period, these
sectors accounted for about 70% of Gross domestic product (GDP) this was a
period when we were not virtually self sufficient in the production raw
materials for industrial and major cash crops for experts. Indeed, agriculture
provided the main stimulus to our national economy growth these contributions
of agriculture to the over shadowed all other economic sector in the early
1960s.
However, the
reverse was the ease of agriculture in the societies when it place to the GDP
element to only 304 by 1974 due to partly to the persistent neglect of the
agricultural sector it self. In terms of the sector. It can therefore be said
that the Nigeria economy has undergone structural changes in the three and half
decades from predominantly agricultural economy in the 1960s to an economy
mainly reliant on oil from the mind 1970s. The increased earning that is
associated with the demand of Nigeria oil was not fully internalized into the
economics system. The result was that, the consumption pattern because largely
impart – oriented inability to rationalize imports when the ail boom gave way
to oil glut which led to the emergence of trade areas. A growing debt burden
also surfaced in he early 1980s as a result of jumbo loan contracted from the
international capital market.
More so, the
pursuit of an own valued exchange rate policy, the subsequent relegation of
agricultural sector to the back ground heavy public sector spending and the
huge debt over-hang all combined to create distortions consumption and payment
pattern.
The sleep
declined in oil earning in the 1980s necessitated a policy redirection aimed at
realignment the domestic production with the local resources base.
To this end,
central bank of Nigeria consequently called for bidden for purpose of selling
their banks, this was done after the option of merging their banks through
intensive management board had failed to yield positive results. It should be
noted that the potential investor must posses adequate financial and managerial
knowledge to allow reoccurrence of part mistakes.Commercial Bank
However, the
financial position of these banks deteriorated to the extent that the expected
….. were s.. of putting their hard earned resources into these banks. This
prompted the withdrawal of licenses of 26 (13 commercial banks and merchant
banks) by the CBN on January 16th 1998.Commercial Bank
With the
collapse of such number of banks and the security and depositors, the central
banks of Nigeria made it mandatory for banks of Nigeria made it mandatory for
banks to raise their capital base to N25 billion on a before the end of
December 2005.Commercial Bank
This created
room fro mergers and acquisition amongst as this was a good option to sanitize
the banking industries and restore confidential and depositor. Banks that
failed to recapitalize were stated for liquidation.
The choice
of united bank for Africa (UBA) plc was not an accident; the bank is one of the
Nigeria top three commercial banks Ltd.
Established
in 1961 by the constitution of five international banks to take over the
banking business carried on in Nigeria since 1949 by British and French banks
ltd. United Bank for African (UBA) Ltd.Commercial Bank
United bank
for Africa (UBA) merged with standard trust Nigeria to meet the 25 billion and
429 branches, strategically spread all over Nigeria. The bank has recorded an
impressure growth rate. UBA plc is active in all aspects of commercial banking
and provides international banking, trusteeship, share registration, corporate
financing and computer services through specialized division and subsidiaries.
And aggressive business promotion strategy couple with a willingness to
innovate has earned the bank an enviable position in the banking industry. UBA
is strongly committed to its social responsibilities and identifies with the
commerce in which is represented.
1.2 STATEMENT OF THE PROBLEMS
Commercial
banks in Nigeria undergo some problems which serve as hindrance to their rates
in ensuring economic development to the economy of Nigeria. Some of these
problems were indentified in the course of study.
1. The tedious procedures usually associated
with opening of bank account and granting of bank facilities
2. The problems of low capital base on Nigerian
commercial banks
3. The problem of easy access to bank
loans.Commercial Bank
If the above
stated problems are properly tackled, commercial banks would be able to play
major roles in ensuring economic development in Nigeria.
Beside,
several studies have been undertaken to investigate the role of impact of
commercial banks to economic development in Nigeria, but only few have studied
commercial bank loans, interest rate and gross fixed capital formation as micro
economic development in Nigeria.
1.3 OBJECTIVE OF THE STUDY
The main
objective of this study is to examine the impact of commercial banks to
economic development in Nigeria specifically however, the research generally
aim at:
1. Econometrically determine the impact of
commercial bank loans to preferred sectors
2. To identify the constraints towards granting
of loans and advances
3. To examine the impact of commercial bank
loans to economic development in Nigeria.
1.4 RESEARCH QUESTION
The
following question will guide the study.
1. Does commercial banks contribute in the three
care sector of the economy with regard to agriculture, manufacturing and
mineral production
2. How has contribution of commercial banks in
any way led to increase in economic growth using gross domestic product GDP has
proxy to economic growth?
3. How has the step taken by the federal
government to resolve the under capitalization of commercial banking been a
solution to the problems?
4. What are the constraints towards granting of
loans and advances?
1.5 RESEARCH HYPOTHESIS
Ho:
Commercial banks do not significantly impact on the economy
Hi:
Commercial banks impact significantly on the Nigerian economy?
1.6 SIGNIFICANCE OF THE STUDY
The out come
of the research project will be of great benefit to the managers of the
economy. By identifying strengths and weaknesses of commercial banks, policy
formation can be made in future by drawing from the research outcome. More
importantly, the following set of individuals will appreciate the research out
come in there decision making exercise. These individuals includes; Bakers,
policy formulators, financial analysts,
investors and general banking public. The banker will find this research work
sectors of the economy, areas of weakness identified will be concentrated upon
for adequate corrective measure to be taken. Also by knowing what their roles
and what the public expects from them, the bankers are better positioned in
carrying out there role effectively.Commercial Bank
The
financial analyst will fine interest in the outcome of the research project
work. It will go a long way to adding to their knowledge when will be of great
importance in the exercise of their responsibility of giving professional advices
to their client.Commercial Bank
On a
personal note, the study would be an invaluable asset to this researcher as a
progressive student of economics. Finally, future researchers both student and
non-student would also find this study indispensable.
1.7 SCOPE OF THE STUDY
This
research covers the period of 1980-2010 and areas like the total loan and GDP.
Moreover, the study is limited to the Nigerian economy. It is equally limited
by time and limited source of data. There are time also constraints in the
process of carrying out the research due to inaccuracy of data. It is sometime
impossible to under estimate or overestimate.Commercial Bank
This study
is organized in five chapters and data analyzed from empirical stand point. The
first chapter talks on introduction of the commercial banking, its impact on
Nigeria economy, chapter is the review of related literature, chapter three is
the research design and methodology. Chapter four is on data presentation
analysis and interpretation. And chapter five is on summary of outcome
conclusion and recommendations.Commercial Bank
1.8 LIMITATION OF THE STUDY
A study of
this nature ought to have compelled the researcher to visit major commercial
cities and towns in collecting data. Thus, the researcher is very much aware of
were he intends to do so, constraint ranging from adequate finance to time
factor poses a big treat.Commercial Bank
Even when
the problem of distance and give are solved by limiting the scope of the study
to a particular town, there is also the problem of reluctance to giving out
information by the banks. This could be due to the high level of secrecy being
observed by these establishment as a result of there limitation therefore the
researcher has been compelled to study commercial banks within a town with a particular
interest in United bank for Africa (UBA) Plc.Commercial Bank
1.9 ASSUMPTIONS
i. That the data collected from CBN
reports and statistical bulletin is reliable because CBN is a highly placed
body which documents are relied upon
ii. That the information given by the
website are correct.
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