ABSTRACT
The national apex bank, the central bank of Nigeria (CBN), since its establishment in 1958 has been preoccupied with the goals of ensuring the smooth running and satisfactory performance of the banking sector so as to enable it perform its leading role in the entire financial sector of promoting economic growth and international acceptability of the Nigerian banking practice. To achieve these goals, policies and subsequent reforms were promulgated. Some of the reforms were over-reaching and counter to each other. As a result, it has not been easy for the financial analysts to make good assessment of the impact of these reforms on the banking sector.
Burning with the seal to crack this puzzle, the researcher chose this topic “The impact of CBN Reforms on the Nigeria Banking Sector (a case study of Union Bank Plc in Enugu metropolis)”. The information for the study was collected using primary and secondary methods of data collection. For the primary data collection, questionnaires, personal observations and oral interviews were used while existing literature relevant to the topic was consulted for the secondary data.
The researcher used chi-square statistical model to analyze the data. Two major findings were made: CBN current reforms have a significant impact on the Nigeria banking sector. High proportion government borrowing from banks instead of capital market tends to push up lending rate. Two major recommendation were proffered, viz government has to borrow more from the capital market than banks so as not to whip up lending rates, and banks should not focus on opening more branches and acquiring more assets but should, instead, discourage handing of cash in favour of automation of banking operations. The researcher suggested possible extension to the study by looking into the effect of insurance and capital market reforms on the economic growth.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Economic growth has long been considered an important goal of economic policy with a substantial body of research dedicated to explaining how this goal can be achieved. Most of the empirical studies have focused on explanatory variables selected on the basis of their relevance to policymakers or because of other theoretical predictions. See for instance, Barro 1991; Levine and Renelt 1992.
However, while most prior empirical studies have focused on economic and non economic determinants of growth in developed and developing economies, there has been very little study focusing on the relationship between the banking sector and economic growth in developing economies. The handful of studies undertaken has focused on transition economies of central and eastern European and the Baltics. Tuuli (2002) explained that although there has been numerous empirical studies on the determinants of growth in transition economies “the relationship between financial markets and economic growth, however, has largely been ignored. To our knowledge, the only study that empirically tests the relation between financial markets and economic growth in transition countries is Drakos’s (2002) paper on the effects of banking sector’s structure on economic performance.” Tuuli’s (2002) study however has some shortfalls: it equates financial sector reforms with banking sector reforms; it uses unbalanced panel data from 25 transition countries as variables which were either not always available or were unavailable for identical periods for each country, and it ignores structural differences amongst the countries.In Nigeria, the only empirical study of the relationship between the banking sector and economic growth is Balogun’s (2007) paper on banking sector reforms and the Nigerian economy.