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THE IMPACT OF COMMERCIAL BANKS LENDING ON THE ECONOMIC GROWTH
IN NIGERIA
ABSTRACT
Commercial banks are profit making ventures, they are not a
charitable organization and as such they share with the other business the same
set of expectation concerning the health of the economy. It is in this light that
they source fund from surplus economic unit and make loans available to
borrowers on interest which is otherwise known as intermediation role of
commercial banks. This role is a major sources of profit to commercial banks.
So the purpose of this study is to know how fair the commercial banks lending
has contributed to the growth of the economy. In order to achieve the
objectives, the researcher set forth hypotheses that has been tested with
chi-square. The information require for this research were generated from
secondary data and primary sources through the use of questionnaire.
CHAPTER ONE
INTRODUCTION
1.1Background of the Study
Lending which may be on the long term short term or medium
term basis is one f the services that commercial banks do render to their
customers. In other words banks do grant loans and advances to individuals,
business organizations as well as governments in other to enable them embark on
investment and development activities as a means of aiding economic growth in
particular or contributing in the economic development of Nigeria in general.
Commercial banks are the most important saving, mobilization
and financial resources allocation institutions. Consequently, these roles
makes them an important phenomenon in economic growth and development. In performing this role it most
be realized that banks have the potential, scope and prospects for mobilizing
financial resources and allocating them to productive investment. Therefore, no
matter the sources of generation of income or the economic policies of the
country, commercial banks would be interested in giving out loan and advances
to their numerous customers bearing in mind the three principals guiding their
operation which are, profitability, liquidity, and solvency. However,
commercial banks decision to lend out loans are influenced by a lot of factors
such as the prevailing interest rate, the volume of deposits, the level of
their domestic and foreign investment banks liquidity ratio, prestige and
public recognition to mention a few.
Lending practices in the world could be traced to the period
of industrial revolution which increased the pace of commercial and production
activities thereby bringing about the need for large capital out lay for
projects many captains of industries at this period were unable to meet up with
the sudden upturn in the financial requirements and therefore turns to the
banks for assistance. According to Adedoyin and Sobodun 91991) “Lending is
undoubtedly the hearts of banking business therefore its administration
requires considerable skills and dexterity on the part of the bank management.
However, the emergency of banks in Nigeria in 1872 with the establishment of
African Bank Corporation (ABC) and later appearance of other banks in the scene
during the colonial era witnessed the beginning ofbanks lending practices in
Nigeria. Though, the lending practices is the banks were biased and
discriminatory and could not be said to be operating on international practices
of best standards as only the expatriates were given loan and advances. This
among other reasons led to the establishment of indigenous banks in Nigeria.
Prior to the advent of structural adjustment programme (SAP) in the country in
1986, the lending practices of banks were strictly regulated under the close
surveillance of the banks supervisory bodies. The SAP period brought about some
relaxation of the stringent rules guiding banking practices. The bank and other
financial institution Act; Amendment (BOFIA) 1998, requires banks to report large
borrowings to the CNB. The CBN also requires that their total value of a loan
credit facility or any other liability in respect of a borrower, at any tune,
should not exceed 20% of the shareholders fund impaired by loss in the case of
commercial bank other banking enactment stipulated that banks loan should be
directed to preferred sector of the economy in order to enhance economic growth
and development. In full consideration of all these regulations the bank
resorted to prudential guideline necessary to avoid facture and to enhance
maximum profitability in the bank lending activities. These generally depends
on type of bank, the capital base the deposit base and density of deposit, the
credit guideline issue from time to time by the controlling authority and
internal policies of the banks since loans and advances account for highest
percentage of the total assets of the bank. This study becomes imperative
because commercial banks in Nigeria need to understand how to manage this huge
assets in term of their loan and advances. For the banks to balance their main
objectives of liquidity, profitability and solvency banks must behave in a way,
that their potential customers are attracted and retained. This study will by
to provide insight into the best lending practices, behaviour and how
commercial banks have impacted on economic growth of Nigeria.
The major objectives of this project work is to confirm the
effectiveness of the common determinant of commercial banks lending on the
economic growth in Nigeria, starting from its emergence to this present day.
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