ABSTRACT
The study examined the impact of commercial banks credit on the Nigerian economy. The data was secondary data sourced from Central Bank of Nigeria statistical bulletin. Multiple regression of ordinary least square (OLS) technique of analysis was used. The result from the study revealed that total banks credit to the private sector has positive but insignificant impact on the gross domestic product of Nigeria, while broad money supply M2 has positive and significant impact on the gross domestic product of Nigeria. Based on the findings the study therefore, concludes that commercial banks credit has positive and significant impact on the Nigerian economy hence, recommended that adequate savings should be mobilized by commercial banks from the public by emphasizing more on savings there by government through CBN encouraging commercial banks in Nigeria to lend to the private sector and providing interest rate subsidies, lower the lending rate and other incentives should be given to the private sector investors to enhance investments in Nigeria which will impact positively and significantly to the Nigerian economy and that direct credit control should be adopted by the CBN in other to improve the contribution of the informal sector.
TABLE OF CONTENT
Title
page i
Declaration
ii
Certification
iii
Dedication
iv
Acknowledgement
v
Table
of content vi
List
of tables ix
Abstract
x
CHAPTER ONE: INTRODUCTION
1.1
Background Of The Study 1
1.2
Statement Of Problem 3
1.3
Objective Of Study 4
1.4
Research Questions 4
1.5
The Statement Of Hypotheses 4
1.6
Scope of the study 4
1.7
Limitation Of The Study 5
1.8
Definition Of Terms 5
1.9
Significance Of The Study 6
CHAPTER TWO: REVIEW OF RELATED
LITERATURE
2.1 Concept Framework 7
2.1.1 The Credit Channels 7
2.1.2 The Concept Of Economic Growth 7
2.1.3 The Main Characteristics Of Economic Growth 8
2.2 Theoretical Framework 8
2.2.1 The Model Of Growth 9
2.2.2 Endogenous Growth Theory/New Growth 10
2.3 Empirical Review 10
CHAPTER THRE: RESEARCH METHODOLOGY
3.1 Research Design 19
3.2 The Area Of The Study 19
3.3 Nature and Sources of Data 19
3.4 Model Specification
19
3.5 Techniques of Analysis 20
3.6 Description of variables 20
3.6.1 Dependent variable 20
3.6.2 Independent variable 21
CHAPTER FOUR:
DATA PRESENTATION, ANALYSIS AND
DISCUSSION OF FINDINGS
4.1 Data presentation 22
4.2 Regression Analysis and interpretation of
Result 23
4.3 Test of Hypotheses 23
4.3.1: Test of Hypothesis one 23
4.3.2: Test of Hypothesis two 24
4.4 Discussion of findings 25
CHAPTER FIVE:
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of Findings 26
5.2 Conclusion 26
5.3 Recommendations 27
REFERENCES
LIST
OF TABLES
4.1: Data used for
the Regression analysis 22
4.2: Regression
Result 23
4.3.1: Test of Hypothesis one 23
4.3.2: Test of Hypothesis two 24
CHAPTER
ONE
INTRODUCTION
1.1 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 very 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 organizations. Some of which are repayable on demand by cheaque.
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 honor cheaques drawn by their customers on their demand deposit.
Government bodies source for credit to enable them
meet with various kinds of recurrent and capital expenditures. Individuals and
families on the other hand, take credit which enable them pay for goods and
services (Adeniyi, 2006).
However, to provide these economic
agents with their needed credit, various institutions that render financial
services comes to play. These institutions otherwise known as financial
institutions have banks as a major player among them. This banking institution
is responsible for financial intermediation in the Nigerian financial system,
which enable the channel funds from surplus unit of the economy to the deficit
unit of the same economy, thereby converting deposit to credit (loan).
According to Ademu (2006) in Nwanyanwu (2010), the provision of credit with
sufficient consideration to growth potential in the sector as well as price
system in the economy is one of the ways to generate employment opportunities
and by so doing contributing to the growth of the economy at large. This can be
made possible because, bank credit contribute immensely to the expansion of
business enterprises, increases scale of production which results to growth in
the overall economy. Therefore, the contribution of bank credit to the growth
of the informal sector of the Nigerian economy cannot be overemphasized
considering the contribution of this sector to the overall growth of the
Nigerian economy.
Over 40% of Nigerian populations are
employed in the informal sector which has enormous growth potential. And so,
the availability of credit to these economic drivers will help to harness their
growth potential which will in turn contribute meaningfully to the advancement
of the economy. On the same note, the activities of the formal sector of the
economy have improved tremendously with the help of bank credit available to
them. The sector unlike the informal sector accesses credit easier, because
their structure enables them to easily meet with most conditions for bank
credit which places them ahead of the informal sector in the credit market. The
increase in the contribution of formal sector to the growth of the Nigerian
economy is an indication that the sector has improved and this can be
attributed to bank credit available to them (Nwanyanwu, 2010). It is obvious
from the foregoing that bank credit is a vital macroeconomic tool whose contribution
to economic growth in Nigeria cannot be underestimated
Credit
can be store to revive such an economic activity that suffered the set back.
This
help to make these credit available by mobilizing surplus funds from savers
which have no immediate need of such funds and thus channels such funds in form
of credit to investors who have brilliant ideals on how to create additional
wealth in the economy but lack the necessary capital to execute the ideals.
(Nwonyanwu, 2010). It is instructive to note that the banking sector has stood
out in the financial sector as of prime importance, because in many developing
countries of the world, the sector is virtually the only financial means of
attracting private savings on a large scale.
1.2 Statement
of Problem
In
spite of continuous policy strategies to attract credits to the SMEs, most
Nigerian SMEs have remained unactractive for banks credits supply. For
instance, as indicated in central bank of Nigeria (CBN) reports, almost
throughout the regulatory era, commercial bank’s loans and advances to the SMEs
sector deviated persistently from prescribed minimuim. Furthermore, the
enhanced financial intermediation in the economy following the financial
reforms of the 1986, credits to SMEs as a proportion of total banking credits
has not improved significantly.
Afolabi
(2013) asserted that one of the problems faced by SMEs operators in Nigeria is
that goverments does not give chance or consider them when making policy in
which priority is given to large organizations. This makes financing the main
constraining factor to SMEs growth and hinders their potentials for enhancing
the economic growth in Nigeria. Available informations from CBN,2012 shows
that, as at 1992 commercial banks loan to SMEs as percentage of total credit
was 27.04% in 1997 and decreases to 8.68%, 0.85% and 0.14% in 2002, 2007 and
2010 while 2012 records 0.15% . Consequently, many SMEs in the country have
continued torely heavily on internally generated funds, which have tended to
limit their scope of operation. Therefore it becomes imperative to ask the
following questions.
1. Has
commercial bank lending to SMEs sector improved significantly?
2. Does
density of commerial bank improve SMEs performance in the Nigeria economy?
3. Is
there a significant relationship between commercial bank credit and the output
performance of SMEs in Nigeria?
Answering
these questions will provide insighton the emperical relationship between
commercail bank credit abd its impact on the growth of Nigeria economy and the
implications for banks credit supply to the sector.
1.3
Objective
of Study
The
main objective of this study is to examine the impact of commercial bank credit
on the Nigeria economy
While
the specific objective includes the following:
1. To
ascertain the impact of total bank credit to the private sector (TBCPS) on the
Nigerian gross domestic product (GDP).
2. To
examine the impact of broad money supply (M2) on the gross domestic product
(GDP) of Nigeria.
1.4 Research
Questions
1.
To what extent has total bank credit to the private sector impact on the gross
domestic product of Nigeria
2. How does broad money supply impact on the
gross domestic product of Nigeria
1.5
Research Hypotheses
Ho1: Total Bank Credit to the Private Sector has
no significant impact on the gross domestic product of Nigeria
Ho2: Broad Money Supply has significant impact
on the gross domestic product of Nigeria
1.6 Scope of the Study
This
study looks into the impact of commercial bank credit on the Nigeria economy
which covered the period from 2002 - 2016.
1.7 Limitations
of the Study
1. Financial
Constraint: This was really experienced in the several movements
made to the destination where the research project where carried on and the
money spend for transportations and printing of some articles.
2. Time
Constraint: The time interval was a major or one of the main
constraints. This is because lots of time was wasted in the process of going to
the computer centres (cyber café) in searching for materials together with lots
of assignments and other academic works, which comprise the term papers and
seminars.
1.8 Definition of Terms
The
following terms has been defined to aid the understanding of the study.
1. Commercial Bank: A commercial bank is a financial institution which
performs the functions of accepting deposits from the general public and giving
loans for investment with the aim of earning profit.
In fact, commercial banks, as their name suggests, axe
profit-seeking institutions, i.e., they do banking business to earn profit. They
generally finance trade and commerce with short-term loans. They charge high
rate of interest from the borrowers but pay much less rate of Interest to their
depositors with the result that the difference between the two rates of
interest becomes the main source of profit of the banks.
2. Bank
Credit: Bank credit is a person's or business's total
borrowing capacity in all forms with a bank. The quantity and cost of bank
credit largely rests on the borrower's creditworthiness, though past
relationships, current income and the use of funds are also factors.
3. Economic
Growth: Economic growth is
an increase in the production of goods and services over a specific period. To
be accurate, the measurement must remove the effects of inflation. Economic
growth creates more profit for businesses. As a result, stock prices rise. That
gives company’s capital to invest and hire more employees. As more jobs
are created, incomes rise. Consumers have more money to buy additional products
and services.
Purchases drive higher economic growth. For this
reason, all countries want positive economic growth. This makes economic growth
the most watched economic indicator.
1.9 Significant of the Study
This
study will be of the following people:
1. Researchers:
This study helped researchers to understand how bank credit can impact on the
economic growth of any nation.
2. Policy
makers: This study helped the policy makers of any organization to alter or
develop a standard policies
3. This
study demonstrates the usefulness of bank credit to private sector, thereby
contributing to the work of government and non-government rural development
organizations.
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