1.0 Introduction
1.1 General Overview of the Study
This project studies the appraisal of the Commercial Bank Lending to the Economic Growth and Development of Nigeria. We shall give a detailed and critical examination of commercial bank lending and try to assess its contribution to the economic growth and development of the country.
Economic growth may be described by reference to quantitative charges in magnitudes of selected economics indicators, whereas development of the economic is discussed in terms of structural transformation which accompanies such growth.
Growth is usually measured by the changes in the magnitude as a country's Gross Domestic Product (GDP) while development is measured by the welfare of the citizens.
Ordinarily, bank lending can be defined as the transfer of resources of the bank to the various economic units of the economy through loans, overdraft, discounting of trade bill etc. The form a bank lending taken depends in any given case, on the purpose of the borrower and the circumstances of the transaction. In each case, a debt is created between the bank and the borrower. Whereby the bank becomes the creditors while the borrower becomes the debtors. Lending is an important aspect of banking and one of the cardinal principles of classical banking is to ensure effective lending which is to maximize profitability and ensure adequate liquidity.
Whether, bank lending is made to a private person corporate organizations or to an economic institution. The purpose is to enhance the development of the economy all things being equal. A developing economy however, needs special attention since the volume of bank lending to it determines to some extent the growth of that economy.
Lending is considered effective, if it successively reconciles the bank's obligation of maximum profitability to its shareholders and maximum liquidity to its depositors. But this principle of ensuring maximum profitability and liquidity may not be satisfactory in a developing economy. As will be seen later, maximum profitability and liquidity are at variance to each other, except on a comprise ground.
Even at a compromise ground where lending is considered effective, it can still be faulted to be ineffective in term of maximum contribution to the development of the economy. Lending to commerce had the trappings of effective lending by the classical (bankers) view while lending to agriculture or contributions to the development of most community may be branded ineffective lending. The later is however more beneficial to the developing economic than the former. It is therefore, necessary that effective lending in developing economy should combine the classical view of effective and ineffective lending.
1.2 Statement of Problems
In our society today, some of our business men and women including some of our educated elite make side comments and criticize the commercial banks for their unwillingness to make loans and advances available to deserving customers and where they agree to make credits, attach very vigorous and difficult conditions for obtaining the finance. This according to critiques has contributed in causing immense slow down in economic growth of the country;
In view of the above, the researcher has considered it expedient to direct this research problems as follows:
- Loans and advances to a new and untried business which is inadequately capitalized
- Loans and advances made because of other benefits such as control of large deposit balances and not based on sound lending principles.
- Over emphasis on income, misplaced emphasis on income, deriving from loans and advances rather than sound principles leads to granting of loans and advances possessing undue risk. in the long run, loss incurred on the loans and advances will exceed the income earned on them.
Some Nigeria, businessmen are unreliable., they are fond diverting funds approved for specific projects, to other uneconomic venture. Thus, creating a right rate of loan losses for banks.
A lot of Nigeria businessmen do not believe in proper record keeping. The majority of small business in this country have no accounting records at all.
1.3 Aim and Objectives of the Study
The aim of the study is to appraise the Impact of Commercial Banks Lending in the Economic Development of Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To help business men and women and other commercial bank customers understand and appreciate why a bank is cautions in his lending operations;
- To find out to what extent commercial bank lending practice conform to lending principles;
- To assess how commercial bank lending affect the economic growth and development;
- To find out the major constraints to commercial bank lending;
- To find out what lending consideration exists for different classes of borrows; and
- To investigate and appraise the extent of commercial bank lending distribution to indigenous business operating in various sectors of the economy.
1.4 Scope of the Study
This research study covers the commercial banks leading in the economic development of Nigeria. Principally, emphasis will be made on bank lending in Nigeria and the role it plays in economic development.
The research study covers the activities of the following commercial banks in Owerri:
- First Bank of Nigeria Plc,
- Union Bank of Nigeria Plc,
- Citizens Bank Plc.
1.5 Statement of Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
- H01: Financial statements are the major consideration in banking lending decision;
- H02: Commercial bank lending plays positive role in economic development of Nigeria.
1.6 Significance of the Research
This study will of great significance to the public as it will create understanding to the nature of commercial bank lending and its contribution to the economic development of Nigeria;
The study will also be of great benefit to banking and finance student and it will help to understand the concept of commercial bank lending to economic development.
The researcher would have contributed to knowledge by undertaking this project.
1.7 Limitation of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint:
The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Establishment Policies:
Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this research work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
- Financial Constraint:
Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents:
A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.8 Definition of Terms
Bank:
This is a financial institution where customers deposits money and other valuable asset for security reasons and other benefit.
Commercial Bank:
Are banks that are establish to carryout banking services but are profit oriented like every other business venture.
Loan:
This is the amount of money given to a customer on credit terms in which the customer in future date will pay both the principles and interest.
Lending:
This is the transfer of money from surplus units (depositors) to deficits units (borrowers) on a condition.
Loan Management:
This is the maximization of the value of a bank by achieving a trade of between liquidity and profitability
Loan Policy:
Are those decision variables that influence the amount of credit or loan
Liquidity:
This is the ability of a bank to covert it asset to cash as to meet her obligations as they fall dev.
Delinquent Facilities:
These are those lending facilities that does not operate within the agreed terms and condition between the banks and customers.
Cannons of Lending:
These are factors put into consideration before they lend money to their customers. Thus, to prevent high rate of default by borrowers.
Security / Collateral:
This are asset or document issued by a customer before loan is given to him. It is what the bank will fall back to if all other considerations fail to work according to exception.
Debtors:
These are customers that are owning a bank sum certain amount of money as a loan being given to them.
Financial Statement:
This is a statement that contains summarized information of the firms financial positions or affairs which is organized systematically.
