THE ROLE OF THE BANKING SECTOR IN THE DEVELOPMENT OF NIGERIAN ECONOMY

1.0 Introduction

1.1 An Overview Of The Study

The integral role played by the banking sector in Nigeria can neither be over looked nor over-emphasized. This is largely due to its ability to efficiently and effectively mobilizes financial resources from the surplus spending units to the deficit spending units in the economy. Also the banking sector is seen as the catalyst of economic growth and development in any country. This is due to the fact that they facilitate smooth financial transaction in all facets of the economy.

According to Osubor and Okafor (2006:42), the Nigerian Banking system is a mixture of branch banking and unit banking system. A branch banking system is that which allows a bank to have branches within and outside its head office location in the country. The bank can open an office for banking business or operation in more than one location. On the other hand, a unit banking system allows the bank to have one office location. Unit banking is not very common in Nigeria but is widely practiced in developed economies like United States of America and Britain.

As a catalyst in the process of economic development, it provides medium of exchange, which promotes exchange, and exchange is at the centre of any economic development. These roles enhance the productive capacity and overall output and employment through its transformation of the savings of individuals and businesses into investment by others.

(Ekezie 1997:6). It is therefore necessary that there must be a financial system in any modern economy, Kanu (2004:2) observed that if there is any economy that requires the existence and vibrant operations of a financial system. It is the economy of developing countries of which Nigeria is one.
This is because developing economies need the services of financial system for rapid development and sustenance.

The Nigerian financial system, which was in the lowest ebb before 1960, has become increasingly deep, broad and sophisticated in structure with so many institutions and operators that facilitate the performance of the primary role of the system. This primary role of the system brings about an efficient and healthy economy.

This project or research work therefore tries to x-ray and examine the role of the banking sector in the development of the Nigerian economy and also the problems facing the sector as well as the prospects of the Nigerian economy with increased bank financing of projects.

1.2 Statement Of The Problem

There exist a huge untapped potential for financial intermediation at the micro and rural levels of the Nigerian economy. Attempts by government in the past to fill this gap, through supply-driven creation of financing institutions and instruments, have failed due to the poor capitalizations of such scheme and restrictive regulatory and supervisory procedures among other factors. The community banks were designed to fill the gap, but their low capital base and isolated mode of operation have not enabled them to make meaningful contributions to micro-financing.

The uniqueness of the real sector brings along with it, however, many challenges for the operators rubicon to be crossed to be able to sustain the movement and command a meaningful break through in the future. One of such challenges is the opening environment. Evaluating the impact of the social, economic, legal and other component of the environment becomes crucial therefore, for operators who are eager to achieve the ultimate goal of poverty reduction, and facilitate growth and development of the economy. This situation becomes more important as the banks have the mandate to serve a sector that is widely dispersed in all ramifications.

1.3 Objectives Of The Study

1. To examine the various regulatory and supervisory policies of the government on the banking sector.
2. To evaluate the contributions made so far by the banking sector to the overall growth of the economy.
3. To determine significant banking activities carried out in the financial system.
4. To mention the contributions of the banking sector on banks within the financial system.
5. To give recommendations on how to improve the banking sector in Nigeria.

1.4 Scope Of The Study

The scope of the study is so wide as it tends to cover comprehensively and extensively the totality of the banking sector in Nigeria.
The areas covered by the study includes:

1. The structure of the Nigerian economy
2. Overview of the banking sector
3. The role of the banking sector in the development of the Nigerian economy.
4. Problems facing the Nigerian banking sector.
5. Prospects of the Nigerian banking sector.

1.5 Statement Of Hypothesis

1. H1: The role played by the banking sector is fundamental to the development of the Nigerian economy.
2. H2: The Nigerian banking industry has positive impact in enhancing productivity in the real sector of the economy.

1.6 Significance Of The Study

This research work if completed will be of immense benefit to the following groups:

Bank Financial Institutions:

This research work will be of great benefit to bank financial institutions such as commercial banks, micro-finance banks, universal banks etc as it will go a long way to enable them know their expected role in the growth and development of the Nigerian economy.

Regulatory Bodies:

Regulatory bodies in the industry such as the central bank of Nigeria (CBN) and the National deposit insurance corporation (NDIC) will find this research work very useful, as it will assist them in knowing their weakness and possible solutions to them.

Students:

This study will be of immense support to students for them to close their knowledge gap about the subject matter and for further research on the topic in terms of reference.

Laymen:

Laymen will find this study very important, as it will enable them to know more about the Nigerian Banking industry and their role to the growth and development of the economy.

1.7 Limitations Of The Study

The researcher encountered a number of constraints in course of this study and they include:

Finance:

The research was carried on the limited resources of the researcher. The funds required were not forth coming, thus the researcher had to manage the meager income available and this hampered the extensive coverage of the study.

Time:

The researcher did not have sufficient time needed for the research of this nature, thus she, had to share her time with other academic chores.

Respondents:

On the part of respondents, some of them were reluctant to divulge information while some did not pay attention to the researcher.

1.8 Definition Of Terms

Bank:

An institution, corporate or unincorporated, recognized by a country's highest monetary authority or government for the purpose of carrying on the banking business determined by that monetary authority.

Banker:

Any person or group of persons licensed to carry on the business of banking as specified by the relevant banking laws.

Banking:

Is the performance of any of the banking businesses.

Capital Adequacy:

This represents the amount of capital resources needed by a bank for its operations consistent with its level of assets risk assumption.

Branch Banking:

This is a system where a single banking institution operates her banking services in more than one office location.

Monetary Policy:

This is a deliberate effort by the monetary authorities (The Central Bank) to control the supply and direction of money and credit with a view of achieving broad economic objectives.

Credit:

This is a loan of money extended to the deficit unit of the economy in order to empower them.

Micro Finance Bank:

This is any company licensed by the CBN to carry on business of providing micro finance services such as savings, loans, domestic fund transfer, and other financial services that are needed by the economically active poor, micro and small and medium enterprises to conduct or expand their business as defined in the guideline for MFB in Nigeria.

Credit Management:

This is the maximization of the value of an organization by achieving a trade off between liquidity and profitability.

Money Laundering:

This is a process of concealing the existence, source or use of an illegally obtained money by converting the cash into untraceable transactions in banks.

Loan Syndication:

This is an agreement between two or more banks to provide a borrower with credit facility utilizing common loan documentation.

Banking Sector:

This is the aggregation of the entire deposit money banks, their financial arrangements, and a set of rules and regulations that foster interactions among them and with their publics.

Deficit Spending Unit:

These are units within the economy, which are in dire need of finance and funds for the investment and consumption purpose.

Economic Development:

This refers to the process of growth in total per capita income of countries. It is occasioned by basic changes in the structure of the economy.

Economic Growth:

This means steady process of increasing productive capacity of the economy and also in the increasing of National Income.

Financial Institutions:

These are institutions which serve the purpose of channeling funds from lenders to borrowers or from areas of relative surplusity to areas of relative scarcity.

Surplus Spending Units:

This refers to the units of the economy that has sufficient funds or cash and has no immediate need of it and is willing to save it.

Money At Call:

A debt, which must be paid upon demand usually on 24 hours basis.

Monetizing Debt:

Paying off government debt by printing more currency, which usually generates inflation.

Near Money:

High liquid assets, which are not cash but can easily be, converted into cash, such as bank deposits and treasury bills.