CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

The idea of establishing financing institutions was mooted soon after the establishment of the central bank of Nigeria on first July, 1959 after the bank failures of the early 1950’s.  At this stage, it became obvious that there was an urgent need to establish financial institutions capable of providing medium and long-term capital to full up the serious gaps in the financial system of the economy.

          In view of the dwindling position of the economy the government has at various times tried to correct through monetary and fiscal policies the downward movements of the economy as well as to place the economy on a path of meaningful development.

Owing to the important roles agriculture and manufacturing sectors are expected to play in the economic development the government introduced a lot of policies to encourage production in these sector for example, the stipulated sectoral distribution of loans to agriculture and manufacturing sector (preferred sectors) has been increasing over the years.  The government executes the monetary policies through the banks of which commercial banks are the key players.

Generally, we know that the financial system of any society (of which the banking system is undoubtedly the most dominate), is the frame work within which capital formation takes place through intermediation of the institution.  The participants in the banking system mobilize resources from the