The Impact of Money Deposit Banks on the Economic Development of Nigeria

The Impact of Money Deposit Banks on the Economic Development of Nigeria

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Chapter One of The Impact of Money Deposit Banks on the Economic Development of Nigeria

INTRODUCTION

BACKGROUND TO THE STUDY

Money deposit banks are resident depository corporations and quasi-corporations which have any liabilities in the form of deposits payable on demand, transferable by cheque or otherwise usable for making payments. The banking sector in Nigeria in 2010 financial year was oligopolistic in structure as only ten banks 11.1% of the 90 operation accounted for 54.5% of total assets, 52.4% of total deposit liabilities and 46.1% of total deposit liabilities of deposit money bank as at 31/12/2006 amounted to #2,705 billion. Whilst aggregate credit to the domestic economy amounted to #1,302.2  billion. In 2006, sectoral allocation of deposit money banks credit continued to favour the less productive sector of the economy as only 40.9% of the total credit went to agriculture, solid minerals, exports and manufacturing down from 46.2% in 2001. In the year 2007, the general performance of banks was not significantly different from what happened in the previous year.

Economic growth has been a major objective of successive governments in Nigeria. In performing the financial intermediation role, it has been argued that by virtue of this function that banks generate economic growth by providing needed resources for real investment (Shaw, 1973; Mckinnon, 1973). Economic growth is one of the important factors that improve living standards in developing countries. It is an indispensable requirement for economic development among other factors. It is believed that the main factors affecting economic growth are labour, capital and exogenously determined technology. Subsequently the new growth theories try to incorporate technology and human capital as endogenous factors. The role of finance in terms of money deposit bank was well acknowledged by researchers. The function of these banks as financial intermediation involves channeling funds from the surplus unit to the deficit unit of the economy, thus transforming deposits into loans or credits. The role of money deposit bank in economic development has been recognized as credits are obtained by the various economic agents to enable them meet investment operating expenses. For instance, business firms obtain credit to buy machinery and equipment, farmers obtain credit to purchase machines such as tractors, seeds, fertilizers, and erect various kinds of farm buildings. Government bodies obtain credits to meet various kinds of recurrent and capital expenditures. Individuals and families also take credit to buy and pay for goods and services (Adeniyi, 2006). According to Ademu (2006), the provision of credit with sufficient consideration for the sector’s volume and price system is a way to generate self employment opportunities. This is because credit helps to create and maintain a reasonable business size as it is used to establish and/or expand the business to take advantage of economy of scale. It can also be used to improve informal activity and increase its efficiency. While highlighting the role of credit, Ademu (2006), further explained that credit can be used to prevent economic activity from total collapse in the event of natural disasters such as flood, draught, disease or fire. The banking sector helps to make these credits available by mobilizing surplus funds from savers who have no immediate needs for such funds and thus channels such funds in form of credit to investors who have brilliant ideas on how to create additional wealth in the economy but lack the necessary capital to execute the ideas.

STATEMENT OF THE PROBLEM

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. According to Adekanye (1986) in making credit available, money deposit banks are rendering a great social service because through their activities, production is increased, capital investment are expanded and a higher standard of living is realized. However, in Nigeria as in many other developing countries, the ratio of bank credit to the private sector to GDP has not increased significantly. This has made it necessary to examine the impact of money deposit banks on the economic development of Nigeria.

OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1. To examine the activities of the money deposit banks.
2. To examine the impacts of money deposit banks on the economic development of Nigeria.
3. To examine the relationship between money deposit banks and economic development of Nigeria.

RESEARCH QUESTIONS

1. What are the activities of the money deposit banks?
2. What are the impacts of money deposit banks on the economic development of Nigeria?
3. What is the relationship between money deposit banks and economic development of Nigeria?

HYPOTHESIS

HO: There is no significant relationship between money deposit banks and economic development of Nigeria.
HA: There is significant relationship between money deposit banks and economic development of Nigeria.

SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1. The result of this study will educate the general public on the relationship between money deposit banks and economic development of Nigeria.
2. This research will be a contribution to the body of literature in the area of the effect of personality trait on student’s academic performance, thereby constituting the empirical literature for future research in the subject area.

SCOPE/LIMITATIONS OF THE STUDY

This study will cover the impacts of money deposit banks on the economic development of Nigeria.

LIMITATION OF STUDY

Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work
REFERENCES
Adekanye F. (1986) Elements of Banking in Nigeria, Lagos: F and A publishers
Ademu, W.A. (2006) “The Informal Sector and Employment Generation in Nigeria.” Selected papers for the 2006 annual conference of the Nigeria Economic society in Calabar, August 22nd to 24th.
Adeniyi O.M. (2006). Bank credit and economic development in Nigeria. A case study of deposit money banks. Jos: University of Jos
Kinnon M.C R. (1973) Money and Capital In Economic Development Washington: The brooking Institute

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