CHAPTER ONE INTRODUCTION 1.1 Background of the Study:

Finance is required by different people, organizations and other economic agents for different purposes. To provide the needed finance, there are varieties of institutions rendering financial services. These institutions are called financial institutions. Financial institutions are divided into money and capital market. In the money market we have banks that render financial services in term of intermediation. This involves channeling funds from the surplus spending to the deficient spending units of the economy, therefore, transforming bank deposits into credits.

The role of credit in economic development has been recognized as credits are obtained by various economic agents to enable them meet operating expenses. For instance, business firms obtain credit to buy machinery and equipment. Farmers collect loans to buy seeds, fertilizers, erect various kinds of farm buildings. Government bodies obtain credits to meet various kinds of recurrent and capital expenditures.

Furthermore, individuals and families also take credit to buy and pay for goods and services (Adeniyi, 2006). Ademu (2006) said 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 economic of scale. It can also be used to improve informal activity and increase its efficiency. This is achievable through resource substitution, which is facilitated by the availability of credit. While highlighting the role of credit, Ademu (2006), further, explained that credit can be used to prevent an economic activity from total collapse in the event of natural disaster, such as flood, drought, diseases, or fire. Credit can be garnered to revive such an economic activity that suffered the set back.

It is against this background that necessitates this research to examine the extent to which bank credit has impacted on the growth of Nigeria economy, with a particular reference to its long term effect. To achieve the objective of this paper, this work will be structured as follows: immediately following this brief introduction is section two which will contain the review of related literature. Section three will take a look at the methodology that will be adopted for the analysis, the forth section will contain the analysis and interpretation of the result while section five will provide the summary, conclusions and recommendations.

1.2 Statement of the Problem:

There are many literatures that debated on the intermediary role of banks in the economic growth. But, there seem to be a general consensus that the role of intermediation of banks help in boosting economic growth. Akintola (2004) identified banks’ traditional roles to include financing of agriculture, manufacturing and syndicating of credit to productive sectors of the economy.

There remain divergent views on the issue of causality. Alternative explanation has been empirically offered for the relationship that exists between financial intermediation and growth based on the direction of causation. In essence, financial intermediation can be a causal factor for economic growth. In essence, the literature on the finance and growth relationship is not settled yet, while there is a renewed interest globally into the study of credit and its ability to generate growth. These studies concluded that firms that are able to get external finance are more likely to grow than those limited to internal finance only. Recent studies by Beck et al. (2005); Levine (2002) and Boyreau-Debray (2003) emphasised the importance of efficiency of the allocation of credit than an all bank intermediation.

According to them, credit to the public sector is weak in generating growth within the economy because they are prone to waste and politically motivated programmes which may not deliver the best result. Financial development has a positive impact on growth if efficiently channelled, they concluded.

From the above therefore, this study has been necessitated by the gap in empirical evidence. By this we mean that the study has deem it necessary to trend on areas where there is little or no empirical literature to fill in the missing gap in literally scholarship. In doing this therefore the need to empirical examine the impact of banks credit on the economic growth of Nigeria.

1.3 Objective of the Study

The main objective of the study is to examine the impact of bank credit on economic growth in Nigeria.

In specific terms, the objectives include the following:

1. Examine the effect of customer credit on the economic growth of Nigeria.
2. Understand the impact of trade credit on the economic growth of Nigeria.
3. How bank credit can enhance the economic growth of Nigeria.

1.4 Research Questions

The questions this study intends to give answers to are:

1. Does bank customer credit influence the economic growth of Nigeria?
2. To what extent does bank trade credit enhance the economic growth of Nigeria?
3. Does bank credit has the ability to enhance the economic growth of Nigeria?

1.5 Research Hypotheses:

HO: There is no significant relationship between bank credit and economic growth in Nigeria.

HA: There is significant relationship between bank credit and economic growth in Nigeria.

1.6 Significance of the Study

The researchers consider the study very significant on the following basis.

The banking sector and industry will benefit for, the study since the recommendations will help the banking sector serve the better. The finding of the study will enable banking sector solve their problems relating to money lending and economic growth and as well as correct whatever mistakes they have made or are still making in line with their operations. The study will also help future researcher in area of literature on the field of bank lending and economic growth. . There is growing recognition that the banking industry especially the bank must play a greater role in economic growth in the country. In the light of the above, this study will go a long way in bringing to light the problem and prospect of Nigeria economy as an exponent of commercial bank lending; whereas the problem will on being identified become half way solved and the prospect one being recognized will be encouraged to be improved on.

1.7 Scope and Limitation of the Study

The main scope of this study is to examine the impact of bank credit on the economic growth in Nigeria. In doing this, the study shall be delimited to a specific banks from where statistical interferences will be made. These particular banks are First City Monument Bank and Union Bank Plc, all in Bori.

 The Limitation

There were certain limitations that the researcher encountered in the course of carrying out this study. They include:

Financial constraint: financial constraint which limited the scope of the study on bank

Time constraint: a research of this nature certainly required a lot of time to make the research a complete one.

Political instability and government policy on bank lending are considered to have strong effects on bank lending.

1.8 Organization of the Study:

The first chapter which is the introduction to the study seeks bring to fore the antecedents that preceded the current state of bank credit. The section introduces the topic under study; bank credit and economic growth in Nigeria. The objective as well as research questions of the study are outlined in this chapter. The limitations of electronic banking are also captured in this chapter.

In addition, the second chapter makes some conceptual, theoretical and empirical clarification of the subject matter. In doing this, the chapter was mostly concerned the relevant literature that has been able to discuss and analyse the place otherwise impact of bank credit on the economic growth of Nigeria. However, in the regard, literature examine especially in empirical perspective were not only of Nigeria origin.

The third chapter presents the organized research methods that are generally used in such studies. The chapter also identifies the selected sampling method to be used and the method to be used in analyzing data for the study.

Chapter four will treat the analysis and interpretation of the data obtained from the field which will be fed into the scientific system process of analysis. At this stage the analysis of the Data will be done by use of the SPSS software that will organize the data and present graphical results of responses by the respondents.

The  last  chapter  of  the  study  will  conclude  the  analysis  of  the  data used in the study. Recommendations will also be made at this stage regarding to the research work findings.

1.9 Definition of Terms

Bank Lending:    This term is used in banking system in which the banker arranged with its customers to secure credit facilities. Therefore, the borrower is expected to pay interest on the amount borrowed.

Credit: This implies a promise by one party to pay another for money borrowed or goods and services received

Economic Development: – An overall trend or process in which socio-economic is socio-political transformation is achieved with little or no reference to other significant degree of technological economic growth plus changes.

Economic Growth: this is a steady process by which the productive capacity of the economy is increased over time to bring about rising levels of national output and income.

Long-term credits: These are the loans whose repayment period extends beyond five years.

Mid-term credits: these are repaid over a period ranging from one year to five years.

Short-term credits: these are scheduled to be repaid within one year.