THE ROLE OF COMMERCIAL BANKS IN THE ECONOMIC DEVELOPMENT OF RURAL AREAS OF NIGERIA

Powerful Essays
Economy Transdisciplinarity Cognition www.ugb.ro/etc Vol. 15,
Issue 1/2012

103-111

The Role of Banks in Capital Formation and Economic Growth: The Case of
Nigeria
Alex Ehimare OMANKHANLEN
Covenant University, Ota, Ogun State, NIGERIA alexehimare@yahoo.com Abstract: This study investigates the role of banks in capital formation and economic growth:
The case of Nigeria for the period 1980-2009. The economies of all market-oriented nations depend on the efficient operation of complex and delicately balanced systems of money and credit. Banks are an indispensable element in these systems. This study employed the
Ordinary Least square method in carrying out the research. The explanatory variables employed include Commercial Banks Deposit Liability (BDL), Maximum Lending Rate
(MLR), Commercial Banks’ Credit (CBC) and Investment by banks in Nigeria (BINV). The dependent variables are Gross Fixed Capital Formation (GFCF) and Gross Domestic
Product (GDP), which is a measure of a nation’s economic performance – economic growth in this instance From the various test carried out it was find out that Commercial Banks
Deposit Liabilities is elastic to Gross Fixed Capital Formation in Nigeria. This positivity of the coefficient of Commercial Banks Deposit Liabilities is in conformity to the economic a priori expectation of a positive impact of Commercial Banks Deposit Liabilities on Gross
Fixed Capital Formation. Also, the regression result shows that Commercial Banks Credits
(CBC) has a positive impact on Gross Fixed Capital Formation (GFCF). It is therefore recommended that efforts should be made by the monetary authorities to effectively manage the banks’ maximum lending. This policy thrust will most likely result into increased investment activities which will enhance capital formation in Nigeria needed for its real sector investments and industrial growth.
Keyword: deposit liability; credit; capital formation.

Introduction
The Nigerian banking industry is majorly



References: [1] Adam, J. A. (2005) “Banking Sector Reforms: The Policy Challenges of Bank Consolidation in Nigeria.” A Paper Presented at the 46th Nigerian Economic Society (NES) Annual Conference, Lagos [2] Adams, Dale W, (1985). Do rural financial savings matter in savings and development: Economica, Paris. [3] Agu, C.C. (1988) Nigerian Banking Structure and Performance: The Banking System 's Contribution to Economic Development, Onitsha: African-Fep Publishers [4] Heidhues F and Weinschenck G, (1989). Cameroon rural Finance sector study in rural finance profile in African countries, Vol [5] Kammogne Fokam P, 1988. Thèse de doctorat relative à la problématique du financé ment des petites et moyennes entreprises [6] Hussein K.A.&Thirlwall P.A (1999). Explaining differences in the Domestic saving Ratio Across Countries: A panel data study. [7] Jhingan M. L. (2001). Money, Banking, International Trade and Public Finance. (6th Revised and Enlarged Edition) [8] Nwankwo, F.O. (1994). Rural savings mobilization. Indigenous savings and credit Association in IMO State, Nigeria. [9] Obadan M I, (1997). “Distress in Nigeria’s financial sector need for house cleaning by financial institutions". A speech delivered at the closing lunch of the 3rd annual bankers’ conference [10] Padmanabhan, K.P.(1998) Rural credit: Lesson for rural bankers and policy makers. IntermediateTechnology publications, London [11] Rose P.S (1986) Money and Capital Markets, Business Publication Inc., Schmidt H.R et Kropp E., 1988. [12] Toluhi, Michael M.D. (1968). The role of saving banks in the mobilisation of Domestic savings in Nigeria. [13] Thillairajah S. 1994. Development of rural Financial Markets in Sub-Saharan Africa. World Bank Discussion paper [14] Uremadu S.O. (2006) “Core determinant of financial Savings in Nigeria:An empirical analysis for National monetary Policy Formulation”International Review of Business Research Papers.Vol 3 No 111 [15] World Bank (1989)

You May Also Find These Documents Helpful

  • Powerful Essays

    Role of Commercial Banks in Economic Development According to Kent: “An organization whose principal operations are concerned with the accumulation of the temporarily idle money of the general public for the purpose of advancing to others for expenditure.” Various economists have different views about the role of commercial banks in economic development. Schumpeter says, “It is the banking system which serves as a key agent along with the entrepreneur in the process of economic development”…

    • 1293 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    country needs the services of financial institutions for accelerating the pace of development. Commercial banks have played a critical role in the economic development of a country. Now a day’s commercial banks are important not just from the point of view of economic growth, but also financial stability. In emerging economies, commercial banks are special for three important reasons. First, they take a leading role in developing other financial intermediaries and markets. Second, due to the absence…

    • 1746 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    Role of Commercial Banks in the Economic Development of a Country: Commercial banks are one of the three primary agents which help circulating funds in the market. Commercial banks provide loans and corporate bonds to the households, new start ups and small medium enterprises to run their businesses. It also obtains money from the households and invests that money to other profitable investments. The money held as customer account then accrues interest which is given to the customer in the form…

    • 1100 Words
    • 5 Pages
    Good Essays
  • Better Essays

    Role of commercial banks in development. INTRODUCTION A commercial bank is something with which every one of us is well known. However different bankers and economists have defined it in a different way: According to Kent: “An organization whose principal operations are concerned with the accumulation of the temporarily idle money of the general public for the purpose of advancing to others for expenditure.” According to Banking Companies Ordinance 1962: “Banking…

    • 3979 Words
    • 16 Pages
    Better Essays
  • Better Essays

    Bank: An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks,drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks. Features of Bank: • Money Dealing • Acceptance of Deposit • Grant of loan and advances • Payment…

    • 2033 Words
    • 9 Pages
    Better Essays
  • Powerful Essays

    The Role of Rural Banks

    • 1694 Words
    • 7 Pages

    chapter will examine the various methods and techniques for carrying out the study. It has included the research design, the population, the sample size, sampling techniques, the data collection instrument and the procedures for data analysis. 3.1 AREA OF STUDY The research obtained information from both primary and secondary sources of data for the purpose of this study. Primary sources: the research collected data by the conduction of interviews, administering of questionnaires to respondents and…

    • 1694 Words
    • 7 Pages
    Powerful Essays
  • Powerful Essays

    has been underscored that discount houses play very important roles in stimulating investments in the economy and in boosting the general operations of the money market. Not only do they serve as catalyst in the market, they are, on their own, large-scale investors in the money market as well. Their role in facilitating profitable open market operations is worth stressing (CBN, 2004; Ezirim, 2005). Notwithstanding these and other roles performed by discount houses in a typical economy, the Nigerian…

    • 4876 Words
    • 20 Pages
    Powerful Essays
  • Powerful Essays

    1 Development Banks: Their role an d importance for development C.P. Chandrasekhar Among the institutions whose role in the develo pment of the less developed regions is well recognised but inadequately emphasised are the development banks. Playing multiple roles, these institutions have helped promote, nurtu re, support and monitor a range of activities, though their most important function has been as drivers of industrial development. All underdeveloped countries launching on national…

    • 2472 Words
    • 10 Pages
    Powerful Essays
  • Better Essays

    A RESEARCH TOPIC ON THE IMPACT OF OIL SPILLAGE ON RURAL AREAS IN NIGERIA SUBMITTED TO COVENTRY UNIVERSITY ACADEMIC AND PROFESSIONAL SKILLS BY NWANNA ONYINYECHI RUTH STUDENT ID; 5423377 INTRODUCTION Oil spillage is the introduction of chemical hydrocarbon into the ecosystem. Such as lands, water systems, forest etc. which serves as a habitat for humans, mammals, birds, fishes…

    • 1064 Words
    • 6 Pages
    Better Essays
  • Powerful Essays

    THE IMPACT OF MONETARY POLICIES ON NIGERIA COMMERCIAL BANK (A CASE STUDY OF ZENITH BANK P.L.C) For more project materials Log on to Or call +2348130686500 +2348093423853 TERMS AND CONDITIONS Using our service is LEGAL and IS NOT prohibited by any university/college policies You are allowed to use the original model papers you will receive in the following ways: 1. As a source for additional understanding of the subject 2. As a source for ideas for your…

    • 11627 Words
    • 47 Pages
    Powerful Essays