ABSTRACT

It could be affirmative to say that the index for measuring any growing
economys advancement is the extent to which its industries both the large
and small scale has been growing over time. Its a fact that none of these industries
can grow without the required financial assistance from financial institution.The
main objective of this study is access the impact of commercial banks in the
economic development of of Nigeria using a population of sixty five(65)
employees comprising of staffs of the United Bank for Africa Plc. Essentially, a
field survey research design and quota sampling techniques were used. Pearson
chi- square statistics was used to test the hypothesis. Based on the hypothesis
tested, the findings showed that there is a significant impact on the role
commercial banks played in the economic development of Nigeria. Since
commercial banks has significant impact on the development of the economy,
the government is urged to formulate more beneficial policies that will
further strengthen the roles played by these commercial banks for full
development to cover all rural and urban areas of the federation.

CHAPTER ONE
INTRODUCTION
1.1.

BACKGROUND OF STUDY
Commercial banks play an important role in economic development of

developing countries. Economic development involves investment in various

sectors of the economy. The banks collect savings from the people and mobilize
savings for investment in industrial project. The investors borrow from banks to
finance the projects.
Special funds are provided to the investors for the completion of projects.
The bank provide a gurantee for industrial loan from international agencies. The
foreign capital, flows to developing countries for investment in projects.
Commercial banks are involved in the process of increasing the wealth of
the economy, particularly the capital goods needed for raising productivity. The
developed economies need the service of the banking system to enable the
economy attain economic growth, while the developing economies need the
service of banking system for sectorial development.
The financial institution are therefore, capable of influencing the major
saving propensities and opportunity. The need to achieve sustained economic
growth within any economy can be possible admist strong financial institution and
precisely within the existence of a virile banking system. Their activities must be

such that are tailored to work in the congruence with government policies and
programmes in a bid to attaining the desired macro-economic objectives as a
nation.
Schumpeter in 1934 observed that the commercial banking system was one
of the key agent in the whole process of development. Generally commercial banks
not only facilitates but speed up the process of economic development through
making more funds available from resources mobilized.
THE

ROLE

OF

COMMERCIAL

BANKS

IN

ECONOMIC

GROWTH IN NIGERIA
The banking system is a catalyst and engine of growth that is responsible for being
a lifewire to every sector of the economy. It is evident that no sector in the
economy can flourish or prosper without the support and services of the banking
sector, agricultural sector, manufacturing sector, mining or even services sector
cant do without banks. Commercial banks provide and encourage savings. The
establishment of commercial bank especially in the rural areas makes savings
possible, hence economic development is accelerated.
Commercial banks provide capital needed for development. Deficit spender
unit obtain medium and short term loans and overdraft from commercial banks to
start a new industry or to engage in other development efforts. They engage in

trade activities through making use of cheques and other financial instrument
possible. They encourage investment, provide direct loans to the government and
individuals for investment purposes. They provide managerial advices to smallscale industrialists who do not engage in the service of specialist. Commercial
banks also render financial advice to their customers including to invest in.
Commercial banks create money as an instrument to the apex bank for all its
activities. Commercial banks help to enhance development of international trade,
these include acting as referees to importers, providing travellers cheque to those
going abroad, opening letters of credit as well as providing credit for export. All
these helps to promote international trade and relationship between nations, they
provide backup liquidity to the economy. They are transmitters of monetary policy
and they provide some value added from transfering funds from savers to
borrowers and providing liquidity.
The current credit crisis and the transatlantic mortage financial turmoil have
questioned effectiveness of banks consolidation programme as a remedy for
financial stabilty and monetary policy in correcting the defects in the financial
sector for sustainable development. The consolidation of banks has been the major
policy instrument being adopted in correcting deficiencies in the financial sector.
The economic rationale for the domestic consolidation is indisputable, an early
view of consolidation was that it makes banking more cost efficient because larger

banks can eliminate excess capacity in areas like data processing, personnel
marketing or overlapping networks. Cost efficiency also could increase if more
efficient banks acquired less efficient ones. Consolidation is viewed as the
reduction in the number of banks and other deposit taking institutions with a
simultaneous increase in size and concentration of the consolidation entities in the
sector. The driving forces in bank consolidation include better risk control through
the creation of critical mass and economies of scale, advancement of marketing
and product initiative improvements in the overall credit risk and technology
exploitation. These drivers has lead to improved operational efficiencies and larger
and better capitalized institutions.
1.2 STATEMENT OF THE PROBLEM
Given that the economic trend of the commercial banking industry, one
wondered what has hindered economic growth, though an important avenue for
banks to boost the growth of the economy through efficient and effective saving
investment process(financial intermediation) to stimulate investment and
productive activities.
For the past three decades, the Nigerian economy has not shown any
favourable sign of growth. For example, the real GNP growth rate figure was 2.8%
in 1995 with negative figures in years like 1982, 0.3% etc as depicted in the CBN

periodic bulletin in 1986. This shows that the Nigerian economy is not one that can
inspire confidence, if no drastic improvement is shown by financial institutions
with its economy especially in the new millenium.
1.In what extent does commercial bank as a financial intermediate contribute
towards fund mobilization for economic growth and development of the country.
2.What is the essence of commercial banks in Nigerian economy towards
fund mobilization for economic growth and development?
3.What are the problems commercial banks encounter in their performance
towards mobilization of funds for economic growth and development?
1.3 OBJECTIVES OF THE STUDY
The objectives of this research work are tactily stated as follows.
-To determine the contribution of commercial banks towards a positive
economic growth and wealth creation.
-To examine ways in which the commercial banks in Nigeria can be made to
play better roles towards fund mobilization for economic growth and development.
-To analyse the constraints and short comings facing commercial banks in
Nigeria towards fund mobilization for economic growth and development.

-To determine and test the effects of some relevant economic variable and
factors on the real gross domestic product(GDP) of Nigeria.
1.4 STATEMENT OF THE HYPOTHESIS
This research work will be guided by the following hypothesis.
Commercial banks do not contribute significantly towards fund mobilization
for economic growth and development of the country.
The variables of commercial banks are lending deposits, real investment and
interest rate etc do not have any impact in the Nigerian economic sector.
The constraints on the activities of the comercial bank do not affect their
economic role and activities.
1.5 SIGNIFICANCE OF THE STUDY
The study makes clear the actual contributions and operations of commercial
banks in Nigeria. It will also sensitize the society on the importance of commercial
banks in Nigeria.
The study

will be important to the policy makers and the federal

government inorder that to adapt and implement policy measures that will boost
the economy through the financial institution.

It will also depict the negative and positive side of the activities of the
general public and bankers, for some correction and changes in order to boost the
economy.
1.6 LIMITATION OF THE STUDY
The main task of the study is to give in full detail the role of commercial
banks in fund mobilization for industrial growth and development but due to
insufficient time frame for the purpose of simple and articulate analysis, the study
is restricted to commercial banks specifically. The study is limited to the period of
1975-2008 which saw the significant role played by the financial sector in the
Nigerian economy.

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