ABSTRACT
The study was design to investigate the impact of commercial bank lending on manufacturing sector performance in Nigeria covering the period of (2005 – 2017). The objective of the study were: To investigate the impact of commercial bank lending rate on manufacturing sector performance in Nigeria. To evaluate the impact of commercial bank loan and advance on manufacturing sector performance in Nigeria. Ordinary least square technique was employed to draft out findings and thus: Commercial bank lending rate has an insignificant effect on the manufacturing sector performance in Nigeria. Commercial bank loan and advance has a significant effect on the manufacturing sector performance in Nigeria. Base on the findings, the study recommends that, government through the Central Bank of Nigeria should pursue policies that lower lending rate especially to the investors in order to increase the output of the manufacturing sector in Nigeria. Despite the significant effect, there is need for policy makers should encourage commercial banks to continue giving out loan and advance especially to manufacturing companies to keep improving productivity through upgrading of its technologies. Thus, increasing the manufacturing sector in Nigeria.
TABLE OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of contents vi
List of tables ix
Abstract x
CHAPTER 1
INTRODUCTION
1.1 Background to the Study 1
1.2 Statement
of the Problem 2
1.3 Objectives of the Study 2
1.4 Research
Questions 4
1.5 Hypotheses 5
1.6 Significance of the Study 5
1.7 Scope
of the Study 6
1.8 Limitations of
the Study 6
1.9
Definition of Terms 6
CHAPTER 2
REVIEW OF RELATED LITERATURE
2.1 Conceptual
Review 7-8
2.1.1 Overview
of the Nigerian Manufacturing Sector 9-10
2.1.2 Structure
of the Nigerian Manufacturing Sector 11
2.1.3 Limitations
of the Manufacturing Sub-sectors 11
2.1.4 Limitations
of the Financial Sector 12-14
2.1.5
Determinants of Commercial Banks’ Lending Behaviors in Nigeria
15-18
2.2 Nigerian Gross Domestic Product Concept 19-21
2.3 Commercial
Banks Credits and Manufacturing Sector output in Nigeria. 22-23
2.4 Theoretical
Review 24
2.4.1 Loan
Pricing Theory 24
2.4.2
Theory of Multiple Lending 25
2.4.3
Credit Market Theory 25
2.4.4
Loanable Funds Theory 25
2.5
Empirical Review 26-29
CHAPTER 3
RESEARCH METHODOLOGY
3.1 Research
Design 30
3.2 Data
Collection and Instrument 30
3.3 Model
Specification 30
3.4 Description
of Variables 30
3.4.1 Manufacturing
Output 31
3.4.2 Commercial
Bank Loans 31
3.4.3 Commercial
Bank Interest Rate 32
3.5 Techniques
of Analysis 32
3.6 Decision
Rule 32
CHAPTER 4
DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
4.1
IntroductionTable1: Data
Presentation 33
4.2
Presentation of Ordinary Least
Square Regression (OLS) Result. 34
4.2.1
Impact of Commercial Bank Lending Rate
on the Manufacturing Sector 34
4.2.2 Evaluation Based on Theoretical Criteria (A
Priori Expectations
Based on Commercial bank lending rate 34
4.3
The Statistical Criteria (First
Order) Test 35
4.3.1
Coefficient of Determination (R2) 36
4.3.2
The t-Statistic (Test of Hypothesis) 36
4.4.3
The F-Test 37-38
CHAPTER FIVE
SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATIONS
5.1
Summary of Findings 39
5.2 Conclusion 39
5.3
Recommendations 40
REFERENCES
41
APPENDIX 45
LIST OF TABLES
Table1:
Data Presentation 33
Table 2: Dependent Variables 34
Table 3: Tabular
representation of the T-statistic results 37
CHAPTER 1
INTRODUCTION
1.1 Background to the Study
The
financial sector, especially the commercial bank is very important in the
smooth functioning of the manufacturing sub-sector of the economy. Lending
which may be on short, medium or long term basis is one of the services that
commercial banks render by any loans and advances to individuals, business
organizations as well as manufacturing sub-sector in order to enable them carry
on investment and development activities as a means of aiding growth in
particular or contributing towards the economic growth of the country in
general (Felicia, 2011). Commercial banks play crucial role in financial
intermediation to the deficit economic unit. Consequently, these roles make
them an important phenomenon in economic growth and development. In performing
these roles, it must be realized that banks have the potential, scope and
prospects for mobilizing financial resources and allocating them to
manufacturing sector and in return increase productivity. Therefore, irrespective
of the sources of income generation on the economic policy of the country, commercial
banks would be interested in giving out loans and advances to their customers
bearing in mind the three principles guiding their operations which are
profitability, liquidity and solvency (Adolphus, 2011). Commercial banks
decision to lend out money are influenced by a lot of factors such as the
prevailing interest rate, the volume of deposits, the level of their domestic
and foreign investment, banks liquidity ratio and public recognition to mention
but a few.
Regardless
of the fact that the manufacturing sub-sectors are the life wire of the
development of the economy of a country, manufacturing sector plays a catalytic role
in a modern economy and has many dynamic benefits crucial to economic
transformation. In advanced countries, the manufacturing sector is the leading sector
in many respects. It is an avenue for increasing productivity related to import
replacement and export expansion, creating foreign exchange earning capacity and
raising employment and per capita income which causes unique consumption patterns.
Furthermore, it creates investment capital at a faster rate than any other
sector of the economy while promoting wider and more effective linkages among
different sectors. In terms of
contribution to the gross domestic product (GDP), the manufacturing sector is
dominant and it has been overtaken to the services sector in a number of
organizations for economic co-operation and development (OECD) countries
(Anyanwu, 2003).
Manufacturing
activities have a significant impact on the economy of a nation. In developed
economies, for instance, they account for a substantial proportion of total
economic activities. In Nigeria, the subsector is responsible for about 10% of
total GDP annually (Bada, 2017). In terms of employment generation,
manufacturing activities account for about 12% of the total force in the formal
sector of the nation economy performance. Activities in the manufacturing
sector cover a broad spectrum ranging from light agro-based industries to heavy
iron and the steel companies. In an advanced economy, the manufacturing sector
is a leading sector in a different aspect; it is an avenue of increasing the
productivity related to import replacement and expansion, creating foreign
exchange earnings and per capital income, which causes unique consumptions patterns
(Anyanwu, 2000). However, the effectiveness of manufacturing companies is dependent on the
availability of resources, such as raw materials and financial availability to
meet up with the demands. This brings about the needs of the financial sector in
Nigeria by allocating a substantial amount in developing this subsector of the
economy.
Before independence,
agricultural products dominated Nigeria’s economy and accounted for the major
share of its foreign exchange earnings (Ogar, Nkamare & Effiong, 2014).
Initially, inadequate capital investment permitted only modest expansion of
manufacturing activities. Early efforts in manufacturing sector were oriented
towards the adoption of an import substitution strategy in which Light Industry
and assembly related manufacturing ventures were embarked upon by the formal
trading companies up to about 1970, the prime mover in manufacturing activities
was the private sector which established some agro-based Light manufacturing
units such as vegetable oil extraction plants, turneries tobacco processing,
textiles, beverages and petroleum products. The strategy of light and
assemblage manufacturing shifted somewhat to heavy industries from the period
of the Third National Development Plan (1975-1980) when government intervened
to establish Core Industrial Plants to provide basic imports for the downstream
industries. The import dependent industrialization strategy virtually came to a
halt in the late 1970s and early 1980s when the Liberal Import Policy expanded
the imports of finished goods to the detriment of domestic production (Ariyo, 2005
as cited in Ogar, Nkamare & Effiong, 2014). In this regard,
industrialization constitutes a veritable channel of attaining the lofty and desirable
conception and goals of improved quality of life for the populace. Thus, in a
supportive mood, Lovis (1967 as cited in Ogar, Nkamare & Effiong, 2014),
assumes that in any economy, one or more sectors serve as a prime mover moving
the rest of the economy forward. The role of engine of growth or leading sector
has usually been played by industrial sector under the industrialization
process.
The role of bank
credits in the growth of manufacturing sector cannot be overemphasized. For
instance, the Federal Government’s Appropriation Bill for the year 2005 has as
one of its broad policy objectives to achieve a high economic growth rate i.e.
GDP of at least 5%) through a better mobilization and prudent use of economic
resources (Ogar, Nkamare & Effiong, 2014). This objective is not achievable
without significant levels of resources from the financial sector being
mobilized and deployed to finance business expansion and growth. Banks have to
be effective intermediaries for mobilizing and channeling deposits to the
productive sectors of the economy especially the manufacturing sector.
1.2 Statement of the Problem
The problem of commercial bank
lending rate on manufacturing sector performance may not necessarily be as a
result of insufficient funds at the disposal of commercial banks. It has been
discovered that the sector still suffers some problems and major constraints
among which are: insufficient funds channeled to the manufacturing industries,
information gaps as to the range of commercial banks and scope of services
available in the financial sector, high bank lending/inflated interest rate on
the manufacturing sector, and the volume of deposit and banks liquidity ratio.
1.3 Objectives
of the Study
The main objective of this
study was to examine the effect of commercial banks’ lending rate on the
manufacturing sector performance of Nigerian economy. In order to achieve this,
the study will specifically:
1.
Examine the effect of commercial banks’ lending rate on
manufacturing sector performance of Nigeria economy.
2.
Investigate the extent to which commercial bank loans
and advances affect manufacturing sector productivity in Nigeria.
1.4
Research Questions
The study proffered answers to the
following questions:
1. What
are the effect of commercial bank lending rate on manufacturing sector
performance?
2. How
does commercial bank loans and advances affect manufacturing sector’s
productivity?
1.5 Hypotheses
H01: Commercial
banks’ lending rate has no significant effect on the manufacturing sector
performance in Nigeria.
H02: Commercial
banks’ loans and advances have not boosted the productivity of manufacturing
sector in Nigeria.
1.6 Significance of the Study
The study examined the relevance or
the effect of commercial bank lending rate on the manufacturing sector
performance of Nigerian economy. It will give information on the possible areas
for improvement, e.g. on interest and lending rate determination by commercial
banks to manufacturing sector.
Furthermore, the study will help commercial
bank to access and appraise their role in their lending to the manufacturing
sector in Nigeria. The significance of this study could be seen from the
effective mobilization of loans/advances to the manufacturing sector by
commercial bank. It would be necessary
for the banking sector and the commercial banks. It would be necessary for the
banking sector (commercial banks) to be adequately capitalized so as to play
its role adequately in the financial intermediation processes. It will equally
serve as a guideline to future work in the near future. This research will
contribute to knowledge and act as the hero for further research for
undergraduates.
1.7 Scope
of the Study
This study looked into the effect of
commercial banks’ lending rate on manufacturing sector performance of Nigerian
economy.
Commercial banks’ loans and advances and the
interest rate to the Manufacturing sector in Nigeria over the years from 2005 –
2017.
1.8 Limitations of the Study
The limitation of this research was
generally anticipated to include the data collection and inaccessibility to
relevant data for analysis and execution of the problems. There are also the
problems of time constraint and finance which may set limits to analysis of the
data to be collected.
1.9 Definition of Terms
Lending rate: Is an Interest
rate which is
the amount charged, expressed as a percentage of principal, by a lender to a
borrower for the use of assets. Interest
rates are typically noted on an annual basis, known as the annual
percentage rate (APR).
Commercial banks: They are financial
Institutions that grants long, medium and short term loans and serve as financial
intermediary to individuals, businesses organizations as well as
manufacturing sub-sectors.
Manufacturing sector: This is the branch of manufacture and trade based on
the fabrication processing, or preparation of products from raw materials and commodities.
This includes all foods, chemicals, textiles, machines, and equipment.
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