A CRITICAL ANALYSIS OF THE CONTRIBUTIONS OF COMMERCIAL BANKS TO THE ECONOMIC GROWTH OF NIGERIA
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2.0 THEORITICAL LITERATURE
Reforms are predicted upon the need for reorientation and
repositioning of an existing status inorder to attain an effective and
efficient state. There could be fundamental bottle-neck that may
inhibit the functioning of the institutions for growth and the
achievement of core objectives in the drive towards inhancing and
sustaining the economic and social imperatives of human endeavour
carried out through either government institution or private
Consequently, the banking sector, as an important sector in the
financial landscape, needs to be reformed inorder to enhance its
competitiveness and capacity to play a fundamental role of financing
investment. Many literature indicates that banking sector reforms are
propelled by the need to deepen the financial sector and reposition it
for growth, to become integrated into the global financial
architecture, and involves a banking sector that is consulting with
regional integration requirements and International best pratices.
The contention that the contributions of commercial banks should
matter at all for growth and development has given rise to various
opinions and theories among economists. Examining the current changes
and advancement in more sophisticated growth models, which include
financial intermediation, it was fairly obvious by the financial market
have an important role to play in promoting industrial growth.
Robinson(1952) maintained that it is economic development that demand
financial services. A recent work done by Levine(1997) however argues
that the preponderance of theoretical reasoning and empirical evidence
suggets a positive first order relationship between financial
insititutions and economic growth. Goldsmith(1969) asserted that
banking sector’s role matter for real development because the banking
super-structure in the form of both primary and secondary securities
accelerate economic growth and development, they also improve economic
performance to the extent that they facilicitate the transfer of funds
to the best users, ie to the economic system where the fund will yield
the highest social return.
Deveraux and Smith(1994) maintained that commercial banks can only
mobilize economic growth through its influence, or decrease the
savings rate and therefore growth is an open question. Greenwood an
Jovanic(1990) are of the opinion that for commercial banks to affect
economic growth through fund mobilization, commercial bank can increase
the marginal productivity of capital called interest rate which
determines to a great extent the amount that is saved or invested.
According to Udochi (1981:11), despite the obvious benefits
derived from the commercial banks, most Nigerians are not well motivated
to make adequate saving and investments in this hard period, due to
the financial crunch prevailing in the banking and non-banking secor of
our economy. The public don’t hope to obtain enough funds from the
banks neither could the bank afford to lend to an unpredictable
Barnger(1994:24) financial market development is very sensitive to
the nature of macro-economic growth. It depends upon policies which
promote the efficient allocation of resources in accordance with market
forces rather than government directives. The development of financial
market also depends on the provision of an adaptable regulatory and
supervisory framework, which provides a balance between market freedom
and investors protection. Specifically, she stated that the following
conditions are necessary for a competitive and stable financial
environment: conducive and stable macro-economic environment.
Progressive monetary and fiscal policies, appropriate regulatory and
enforcement medians. A major problem concerning commercial banks in
Nigeriais that there is no much link between it and the outside. Brown,
in his book, “The Nigeria banking system” 1998 saw statistical
difficulties as one of the chief handicap of commercial banks in the
country. He indicated the inclination of all firms including the
commercial banks to present as a favourable picture as possible when
they draw up their balance-sheets, which meant nothing more than
WINDOW-DRESSING. This is because a bank’s balance sheet may represent a
true and fair picture of the affair of the bank on the last day of its
financial year, but have a little to do with bank’s affairs other or
2.1 HISTORICAL BACKGROUND
The Evolution Of The Nigerian Banking Sector.
The banking operation began in Nigeria
in 1982 under the control of the expatriates and by 1945, some
Nigerians and Africans had established their own banks. The first era
of consolidation ever recorded in Nigerian banking industry was between
1959-1969. This was occasioned by bank failures during 1953-1959 due to
the liquidity of banks. Banks, then, do not have enough liquid assets
to meet customer demands. There was no well organised financial system
with enough financial instruments to invest in. Hence, banks merely
invested in real assets which could not be easily realised to cash
without loss of value in terms of need. This prompted the federal
government then, backed by the World bank report to institute, of the
loynes commission on September 1958.
The outcome was the promulgation of the ordinance of 1958, which
established the Central bank of Nigeria(CBN). The year 1959 was
remarkable in the Nigerian banking history not only because of the
establishment of Central Bank of Nigeria(CBN) but that the treasury bill
ordinance was enacted which led to the issuance of our first treasury
bill in April, 1960.
The period (1959-1969) marked the establishment of former money,
capital markets and portfolio management in Nigeria, in addition, the
company acts of 1968 were established. This period could be said to be
the genesis of serious banking regulation in Nigeria. With the CBN in
operation, the banking industry restructing was motivated by the need
to establish a healthy banking sector that will carry out its financial
intermediation role at a minimal cost which effectively provides
services consistent with world standards. The major aim of the
consolidation program was to store up the capital base of banks
consolidated through mergers and take-over to local banks. This allows
foreign banks to participate in the banking industry by providing
additional capitalisation through investment infrastructure in new
banking products, operating technologies and buying shares of the
The banking sector reforms, involve the reform of the regulatory
and supervisory framework, the safety net arrangement as well as
mechanisms to speed up attempts at resolution of banks non-performing
loans. In an attempt to revitalize the banking system, a package were
comprising among others.
A CRITICAL ANALYSIS OF THE CONTRIBUTIONS OF COMMERCIAL BANKS TO THE ECONOMIC GROWTH OF NIGERIA
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