CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

The banking sector plays a very important role in the Nigerian economy as a supplier of credit to the many different sectors which require funds for growth. Soyibo & Adekanye (2013) assert that the role of an efficient banking system in economic growth and development lies in savings mobilization and intermediation. Thus, improved financial intermediation, especially through banking institutions, would not only help bridge the gap between domestic saving and investment in Nigeria, but more importantly facilitate trade and capital formation. The deposit money banks have traditionally been an extremely important channel of financial intermediation in both developed and emerging economies. It is common knowledge that the strength of any economy is strongly tied to the strength of her banking sector. On the other hand, the state of the economy is strongly impacted on by the operations and performance of her banking industry. The financial development of any economy is often viewed from among others, the perspective of the growth and vibrancy of its financial sector. This is as a result of how important investible funds are to economic growth and development. The role of deposit money banks in financial development performance cannot be overemphasized. Lucas (2009) noted that the development of any economy is greatly enhanced through a vibrant banking industry. The banking industry serves the function of mobilizing savings from small and large savers in the economy and channels same to the fund users for investment purposes. Banking industry provides credit facilities to individuals, companies, as well as government for one kind of economic activity or the other. It could be for industrialization purpose, agricultural production, execution of contract etc. According to Onwumere and Suleman (2010), all national economies comprise the public and private sectors, though, the degree and size of each sector differ among countries. They asserted that the development of a country’s economy involves in part the development of the different sectors subsumed in these two main sectors. These sectors need funds to continue in operation and contribute to the nation’s overall performance. For them to effectively perform and survive there must be investment which is synonymous with funding, hence the banking industry becomes a very relevant agent. The financial sector occupies a strategic position in every economy because of the important function it plays in the flow of funds. Economists have long recognized that financial markets in general, and banks in particular, play a vital role in the efficient functioning and development of any economy (Guzman, 2011). Finance is relevant for growth and development because efficient financial systems resolve agency problems better, thus enabling firms to borrow at cheaper rates and invest more. As a rule, economic activities increase when savings-surplus units are able to channel funds to the savings-deficit units. This intermediation role of the financial sector actually provides the basis for capital formation and other activities necessary for economic growth. Literature is replete with studies carried out in the finance-growth nexus. Levine (2010) noted that finance promotes growth principally by the efficiency of capital allocation, and not necessarily by increasing investment. The consensus view of academics is that properly functioning financial intermediaries improve the efficiency of capital allocation, encourage savings, and lead to more capital formation (Wachtel, 2009; Santomero, 2010; Frolov, 2014; Aziakpono, 2015). Banks intermediate by first generating deposits which they subsequently lend to these sectors, thereby taking different risks including that of non-repayment of such loans. Deposit money banks remain the largest financial intermediaries to financial development performance in Nigeria, moving funds from surplus sector to the deficit sectors. Desai (2013) explains that banking industry is an indispensable element in any economy’s intermediation drive. It provides the bulk of the money supply as well as the primary means of facilitating the flow of credits especially to the real sectors. McCauley and Rama (2013) submit also that the financial well-being of a nation is a function of advancement and development of her banking industry. Banking is being described by Schumpeter (1934) “as a conductor focal point for financial development growth has important role to play in the funds intermediation between surplus and the deficit sector, hence the over-all growth of the economy‟. Soludo (2014) explains that banks influence the savings–investment process in order to accelerate the rate of economic growth and poverty reduction. Towards this goal, the soundness of intermediation is as important as its volume, hence the need to have an efficient banking system that will impact positively to the development of the entire economy. Ogunleye (2012) noted that government has from the formative years of the nation’s financial market up to the mid-1980s even till now made enough effort to encourage banking sector to extend enough credits to the real sectors. In those years, banks were required to allocate the bulk of their loanable funds to agriculture, manufacturing, mining, residential building construction, solid minerals at concessionary rate of interest, in the belief that a low interest rate structure would promote investments and output growth in the economy. Ekundayo (2011) in his own work describes banking as a life wire, blood vessel and heartbeat of any economy. This means that every other sectors of the economy revolve around banking for their survival. Hence, financial support from banking sector has become a major component of strategy for the survival and effective performance of other sectors of the economy. The role of deposit money banks in the financial development performance of any nation cannot be over emphasized. Therefore, the study examines the analysis of roles of deposit money banks to financial development performance in Nigeria from 1986 to 2018.

1.2      STATEMENT OF PROBLEM

There has been a problem of how to conduct a successful research that can analyze the role of deposit money banks on the financial development performance in Nigeria. Banking sector as the engine and prime mover of economy is supposed to be playing a leading role in empowering the other sectors of the economy to contribute to economic growth and development through improved GDP. Over the years, one of the major problems facing the banking industry in its intermediation role is how to ensure that loans/funds reach various sectors of the economy and significantly impact on them in a positive way. This has not be easy because Nigerian economy is viewed as being monoculture due to the predominant effect of oil sector especially in the resources generation to the government seem to be behind in respect of the generation of revenues to the government. Banking industry is expected to play a catalytic role of extending enough loans and advances to the financial sectors in order to ensure their growth and contributions to the Gross Domestic Product (GDP) of the economy. The government has adopted so many policies to influence the flow of credits to the real sectors of the economy since early 1980s, but to the best of my knowledge, sufficient literature has not been in place as to analyze the roles of deposit money banks on the financial development performance in Nigeria. Hence the study examines the analysis of roles of deposit money banks to financial development performance in Nigeria from 1986 to 2018

1.3      AIMS OF THE STUDY

The major aim of the study is to examine analysis of roles of deposit money banks to financial development performance in Nigeria from 1986 to 2018. Other specific objectives of the study include;

1.  To examine roles of banking industry in the financial development performance in Nigeria from 1986 to 2018.

2.  To examine the functions of deposit money banks in financial development performance in Nigeria from 1986 to 2018.

3.  To examine the impact of deposit money banks on financial development performance in Nigeria from 1986 to 2018.

4.  To examine importance of financial development from 1986 to 2018.

5.  To examine the relationship between the roles of deposit money banks on financial development performance in Nigeria from 1986 to 2018.

1.4 RESEARCH QUESTIONS

1.   What are the roles of banking industry in the financial development performance in Nigeria from 1986 to 2018?

2.  What are the functions of deposit money banks in financial development performance in Nigeria from 1986 to 2018?

3.  What is the impact of deposit money banks on financial development performance in Nigeria from 1986 to 2018?

4.  What is the importance of financial development from 1986 to 2018?

5.  What is the relationship between the roles of deposit money banks on financial development performance in Nigeria from 1986 to 2018?

1.5 RESEARCH HYPOTHESES

Hypothesis 1

H0: There are is no significant impact of deposit money banks on financial development performance in Nigeria from 1986 to 2018.

H1: There is a significant impact of deposit money banks on financial development performance in Nigeria from 1986 to 2018.

Hypothesis 2

H0: There is no significant relationship between the roles of deposit money banks on financial development performance in Nigeria from 1986 to 2018.

H1: There is a significant relationship between the roles of deposit money banks on financial development performance in Nigeria from 1986 to 2018.

1.6 SIGNIFICANCE OF THE STUDY

The study will be of profound benefits to enlighten the people on the role of deposit money banks to financial development performance in Nigeria. This study would also be of immense benefit to students and scholars who are interested in developing further studies on the subject matter.

1.7 SCOPE AND LIMITATION OF THE STUDY

The study is restricted to analysis of roles of deposit money banks to financial development performance in Nigeria from 1986 to 2018.

LIMITATION OF THE 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.

1.8 OPERATIONAL DEFINITION OF TERMS

Bank: A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. 

Deposit account:  A deposit account is a savings account, current account or any other type of bank account that allows money to be deposited and withdrawn by the account holder.

Financial Sector Development: Financial sector development in developing countries and emerging markets is part of the private sector development strategy to stimulate economic growth and reduce poverty.