IMPACT
OF COMMERCIAL BANK IN NIGERIA ECONOMY A CASE STUDY OF UNITED BANK OF AFRICAN
(UBA)
CHAPTER ONE
1.1
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.