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A CRITICAL
ANALYSIS OF THE CONTRIBUTIONS OF COMMERCIAL BANKS TO THE ECONOMIC GROWTH OF
NIGERIA
2.0
THEORITICAL LITERATURE
Reforms are
predicted upon the need for reorientation and repositioning of an existing
status inorder to attain an effective and efficient state. There could be
fundamental bottle-neck that may inhibit the functioning of the institutions
for growth and the achievement of core objectives in the drive towards
inhancing and sustaining the economic and social imperatives of human endeavour
carried out through either government institution or private enterprises.
Consequently,
the banking sector, as an important sector in the financial landscape, needs to
be reformed inorder to enhance its competitiveness and capacity to play a
fundamental role of financing investment. Many literature indicates that banking
sector reforms are propelled by the need to deepen the financial sector and
reposition it for growth, to become integrated into the global financial
architecture, and involves a banking sector that is consulting with regional
integration requirements and International best pratices.
The
contention that the contributions of commercial banks should matter at all for
growth and development has given rise to various opinions and theories among
economists. Examining the current changes and advancement in more sophisticated
growth models, which include financial intermediation, it was fairly obvious by
the financial market have an important role to play in promoting industrial
growth. Robinson(1952) maintained that it is economic development that demand financial
services. A recent work done by Levine(1997) however argues that the
preponderance of theoretical reasoning and empirical evidence suggets a
positive first order relationship between financial insititutions and economic
growth. Goldsmith(1969) asserted that banking sector’s role matter for real
development because the banking super-structure in the form of both primary and secondary
securities accelerate economic growth and development, they also improve economic
performance to the extent that they facilicitate the transfer of funds to the
best users, ie to the economic system where the fund will yield the highest
social return.
Deveraux and
Smith(1994) maintained that commercial banks can only mobilize economic growth
through its influence, or decrease the savings rate and therefore growth is an
open question. Greenwood an Jovanic(1990) are of the opinion that for
commercial banks to affect economic growth through fund mobilization,
commercial bank can increase the marginal productivity of capital called
interest rate which determines to a great extent the amount that is saved or
invested. According to Udochi (1981:11), despite the obvious benefits derived
from the commercial banks, most Nigerians are not well motivated to make
adequate saving and investments in this hard period, due to the financial
crunch prevailing in the banking and non-banking secor of our economy. The
public don’t hope to obtain enough funds from the banks neither could the
bank afford to lend to an unpredictable project.
Barnger(1994:24)
financial market development is very sensitive to the nature of macro-economic
growth. It depends upon policies which promote the efficient allocation of
resources in accordance with market forces rather than government directives.
The development of financial market also depends on the provision of an
adaptable regulatory and supervisory framework, which provides a balance
between market freedom and investors protection. Specifically, she stated that
the following conditions are necessary for a competitive and stable financial
environment: conducive and stable macro-economic environment. Progressive
monetary and fiscal policies, appropriate regulatory and enforcement medians. A
major problem concerning commercial banks in Nigeriais that there is no much
link between it and the outside. Brown, in his book, “The Nigeria banking
system†1998 saw statistical difficulties as one of the chief handicap of
commercial banks in the country. He indicated the inclination of all firms
including the commercial banks to present as a favourable picture as possible
when they draw up their balance-sheets, which meant nothing more than
WINDOW-DRESSING. This is because a bank’s balance sheet may represent a true
and fair picture of the affair of the bank on the last day of its financial
year, but have a little to do with bank’s affairs other or subsequent days.
2.1
HISTORICAL BACKGROUND
The
Evolution Of The Nigerian Banking
Sector.
The banking operation began in Nigeria in
1982 under the control of the expatriates and by 1945, some Nigerians and
Africans had established their own banks. The first era of consolidation ever
recorded in Nigerian banking industry was between 1959-1969. This was
occasioned by bank failures during 1953-1959 due to the liquidity of banks.
Banks, then, do not have enough liquid assets to meet customer demands. There
was no well organised financial system with enough financial instruments to
invest in. Hence, banks merely invested in real assets which could not be
easily realised to cash without loss of value in terms of need. This prompted
the federal government then, backed by the World bank report to institute, of
the loynes commission on September 1958.
The outcome
was the promulgation of the ordinance of 1958, which established the Central
bank of Nigeria(CBN). The year 1959 was remarkable in the Nigerian banking
history not only because of the establishment of Central Bank of Nigeria(CBN)
but that the treasury bill ordinance was enacted which led to the issuance of
our first treasury bill in April, 1960.
The period
(1959-1969) marked the establishment of former money, capital markets and
portfolio management in Nigeria, in addition,Â
the company acts of 1968 were established. This period could be said to
be the genesis of serious banking regulation in Nigeria. With the CBN in
operation, the banking industry restructing was motivated by the need to
establish a healthy banking sector that will carry out its financial
intermediation role at a minimal cost which effectively provides services
consistent with world standards. The major aim of the consolidation program was
to store up the capital base of banks consolidated through mergers and
take-over to local banks. This allows foreign banks to participate in the
banking industry by providing additional capitalisation through investment
infrastructure in new banking products, operating technologies and buying
shares of the existing banks.
The banking
sector reforms, involve the reform of the regulatory and supervisory framework,
the safety net arrangement as well as mechanisms to speed up attempts at
resolution of banks non-performing loans. In an attempt to revitalize the
banking system, a package were comprising among others.
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