ABSTRACT
Financial Literacy is the ability to make informed judgments and to make effective decisions regarding the use and management of money .The need for financial literacy cant be over emphasized in this our time even as the Central Bank of Nigeria seeks to enhance an efficient economy especially through the e- banking system and thus creating a cashless economy beginning form June 1 2012.
Financial system plays a crucial role in the process of financial intermediation in Particular to the growth of the economy as a whole Hence a better understanding of how it work and what they offer and how to utilize the financial products by the participants of the economy help to create a viable financial system and in turn enhance economic development as the chain effect of a viable financial system can’t be denied on the economy. Financial literacy helps an individual fulfill personal, family, social and governmental responsibilities. Financial education has always been important for consumers in helping them budget and manage their income, save and invest efficiently, and avoid becoming victims of fraud. As financial markets become increasingly sophisticated and as households assume more of the responsibility and risk for financial decisions, financial education is increasingly necessary for individuals, not only to ensure their own financial well-being but also to ensure the smooth functioning of financial markets and the economy.
Surveys of financial literacy indicate consumers in many countries especially African countries do not have adequate financial background or understanding and that they estimate their needs for financial education. It has also been observed that a major bane of economic development is lack of financial literacy and inability to maximize the growing financial markets, due to the ever increasing products and services which are continuously offered.
The study was carried in order to seek to advance dialogue on financial literacy and analyze its impact on economic development. The Primary data was used in carrying out the study .Specifically, the tool statistical package for social sciences was used to evaluate the impact of financial literacy on economic development.
The study showed that the financial literacy is essential for a viable financial system which would in turn have its effect on the economy as a whole. Also the study showed that economic participants who are n educated up to the level of SSCE and below find it difficult comparing financial products, making use of cash and non cash payments, understanding financial terms etc. the study also found out that high income earners mostly have a good level of financial literacy especially the educated ones while the uneducated one are only aware of basic knowledge of financial products like savings and current accounts
The results of the study revealed that Financial literacy has an impact on economic development and financial literacy plays an essential role in creating a viable financial system that is there is a link between financial literacy and financial system and institutions and economic development
TABLE OF CONTENTS
Certification……………………………………………………………………......i
Dedication………………………………………………………………………….ii
Acknowledgement………………………………………………………………….ii
Abstract………………………………………………………………………….....v
CHAPTER 1: INTRODUCTION
1.1 Background to the Study……………………………………………….1
1.2 Statement of Problem…………………………………………………..2
1.3 Scope of Study………………………………………………………....3
1.4 Objectives of Study……………………………………………………..4
1.5 Significance of Study…………………………………………………..4
1.6 Research Questions………………………………………………...........5
1.7 Research Hypothesis…………………………………………………....5
1.8 Research Methodology………………………………………………….6
1.9 Sources of Data………………………………………………………….6
1.10 Outline of Chapters………………………………………………………6
CHAPTER 2: LITERATURE REVIEW
2.1: Conceptual framework……………………………………………….....7
2.2: The concept of financial system………………………………………...9
2.2.1: The concept of financial distress………………………………………......11
2.2.2: The types of banks……………………………………………………........12
2.3: The gap in financial system…………………………………………...........20
2.4: The role of banks in filling the gaps in financial system…………………...22
2.5: The structure of Nigeria banking system…………………………………...23
2.6: The distress in commercial and merchant bank……………………..……...23
2.7: Causes of distress in commercial and merchant bank…………………........26
2.8: commercial and merchant bank and economic growth……………………..31
2.9: The effects of commercial and merchant bank distress on the growth of the economy………………………………………………………………..32.
CHAPTER 3: RESEARCH METHODOLOGY
3.0 Introduction…………………………………………………………………33 3.1 Theoretical framework…………………………………………………..…33
3.2 Nature of research method…………………………………………………37
3.3 Sources of Data……………………………………………………………..39
3.4 Method of data presentation and analysis……………………………….…39
CHAPTER 4: DATA ANALYSIS AND PRESENTATION
4.1: Introduction………………………………………………………………...42.
4.2: Presentation of Data………………………………………………………..43
4.3: Data Analysis and Results………………………………………………….45
4.4: Testing of Hypothesis and Discussion of Results…………………………..45
CHAPTER 5: SUMMARY AND CONCLUSION
5.1: Summary…………………………………………………………………..48
5.2 Findings…………………………………………………………………......49
5.3 Recommendations……………………………………………………………49
5.4 Conclusion…………………………………………………………………...51
5.5 Limitation of the studies……………………………………………………..51
APPENDIXES: Secondary Data
Bibliography
Others
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The financial system of any country refers to a set of institution and other arrangement that transfer savings from those who generate them to those who ultimately use them. This research shall focus on the effect of distress in commercial and merchant bank on the growth of the economy. A distress bank is one that is most likely to present substantial financial risk to the deposit insurance agency. Thus it is a bank that in the eyes of the bank regulatory agencies has violated a law or regulation or engaged in an unsafe and sound banking practice to such an extent that the present or future solvency of the bank is in question (sinkey, 1975a/b).
In Nigeria the problem of bank failure is not a new phenomenon, but the post-1987 crisis has been the most widespread and intense in the history of financial system crisis in the country. Generally, financial distress manifested in a number of ways. In the banking sub section, there was increasing illiquidity in the late 1988 when the central bank of Nigeria decided that the back-log of naira backing for foreign exchange application yet to be approved be moved from the banks to central bank of Nigeria.
Also in 1989 many commercial and merchant banks became illiquid and some of them either suspended deposit withdrawals altogether or placed limits on amounts withdrawable and this was due to the federal government decision to transfer all public sector deposits from commercial and merchant banks as well as other financial institutions to the central bank. And this created some panic in the banking system (CBN, 1994)
A structural aspect of the distress has been the flight to quality that is bank customers moving their funds from banks that are perceived to be weak to the strong and better managed ones thereby increasing the problem of banking distress (CBN/NDIC, 1995). This structural effect as noted in the report by CBN/NDIC, was also flight to currency, a rush in the demand for cash, which many people believed to be a safer asset A market effect of the distress in the banking sub-sector in particular was the emergence of very high nominal rates of interest for deposits and interbank funds. This was due to the desperate bid by banks to attract deposits and other funds to meet statutory cash and liquidity requirements or participate in foreign exchange bank biddings. As a result, several banks were unable to honor maturing inter-bank obligations and thereby leading to widespread defaults and cross-defaults in the inter-bank market. This research work we review the distress in the Nigerian banking system with emphasis on the commercial and merchant banks, the causes of the distress in banking system and the effects of the distress on the growth of economy as a whole.
1.2 Statement Of The Problem
The macroeconomic objectives of rapid economic growth, stable prices, and full employment e.t.c can be achieved through the various policies of government. These policies include monetary policy, trade policy e.t.c however; the most important of them are monetary and fiscal policies. The Nigeria financial system is saddled with the responsibility of formulating appropriate and timely policies to achieve the economic objectives mentioned above. But the Nigerian financial system is in distress, which as made it unable to perform its functions as appropriate.
The problem this research works is about to answer is to know the causes and effects of the distress in the Nigerian financial system with emphasis on the commercial and merchant banks and how it affects the growth of the economy
1.3 Scope Of The Study.
As stated earlier the banking industry as a lot of roles functions to play in Nigeria. While few of these have direct impact, majorities have an indirect impact the major functions of the banking industry include providing advisory functions, harnessing of funds, regulatory functions, stability functions e.t.c.
There is no doubt that the functions of the banking industry are enormous. However for a concise and purposeful study. This analysis centered mainly on distress in the financial system with emphasis on the commercial and merchant banks.
This study was restricted to the Nigerian economy and our analysis will cover a period of 34 years within 1970 to 2003.
1.4 Objectives Of The Study
In view of the above problem, the general objective of this study is to identify the distress in Nigeria financial system, causes and effects with more emphasis on the commercial and merchant bank on the growth of the economy.
Specifically, the objectives of this study can be written thus:
1. To measure the impact of interest rate on the distress in commercial and merchant banks and on the growth of the economy.
2. To determine the extent to which aggregate financial savings affect the distress in commercial and merchant banks and the growth of the economy.
3. To examine the relationship between investment and the distress in commercial and merchant bank on the growth of the economy.
1.5 Significance Of The Study
This study is very important because it shall be of great benefit to the following stakeholders;
1. The government; the study shall help them to formulate policies that boost the growth of the economy through commercial and merchant banks.
2. The Nigeria financial authority (CBN): the study would help the CBN in the regulation of the activities of commercial banks and merchant banks for economic growth.
3. Students and the general public; this study would help them identify distressed banks and how they affect the growth of the economy.
1.6 Research Questions
This research work shall answer the following questions:
• What in financial system?
• What is financial system distress?
• How did the distress in financial system come to being?
• What are the causes of distress in commercial and merchant banks?
• What are the effects of the distress in commercial and merchant banks on the growth of the economy?
• How do will prevent the distess in commercial and merchant banks?
1.7 Hypothesis Of The Study.
In view of the above objectives, the following hypotheses will be tested.
Ho: Interest rate does not have an impact on commercial and merchant bank and the growth of the economy.
H1: Interest rate has an impact on commercial and merchant bank and the growth of the economy
Ho: There is no relationship between investment and distress in commercial and merchant banks and the growth of the economy.
H1: There is a relationship between investment and distress in commercial and merchant and the growth of the economy.
Ho: The distress in commercial and merchant banks has no adverse effect on the aggregate financial savings in the growth of the economy.
H1: The distress in commercial and merchant bank has adverse effect on the aggregate financial savings in the growth of the economy.
1.8 Research Methodology
This study shall make use of secondary data exclusively. This study will employ the regression analysis techniques in the analysis of the data collected. The results of the regression analysis that will be conducted will be used to accept or reject the hypothesis stated above.
1.9 Sources Of Data
The data for this research shall be gotten from the following sources:
The annual reports and statistical bulletin of the central bank of Nigeria (CBN), The federal office of statistics (FOS)
1.10 Outlines Of Proposed Chapters
After this first chapter that has to do with the introductory aspect , statement of problem , objective of the study, scope and limitation of the study, hypothesis of the study, limitation of the study . Chapter two will forcus on the literature review in which we carried out a review on the on the conceptual framework that is the definition of the terms in the reseach work , structure of the Nigerian financial system, banking system as a subset of the financial system etc.
Chapter three will focus on the research methodology that is the model for the study, the data collection method that will be employed, and the sampling technique. In chapter four, the data outlined in the prevous chapter will be analysed and the implication of the analysis will be reported. Chapter five will be the summary of the entire work and conclusion of the work.
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