The research work provides a review of empirical research on the link between banks and economic growth in Nigeria. The review shows that there are still quite a few unresolved issues in empirical research, which causes scepticism towards prioritizing financial sector policies in order to cause economic growth. It used total loan and advances of commercial bank to represent bank contribution while gross domestic product growth rate represents economic growth. Tcal and Ttab were used to test the hypotheses. The study therefore concludes that banks experienced a higher performance but have not been able to translate this performance into sustainable economic growth for the country. It therefore  recommends that there is a great need for the rejuvenation of social and economic infrastructural facilities given its potential in improving productivity, creating wealth and increasing the much needed saving for long term investment


Title Page                                                                                         i

Approval Page                                                                                 ii

Certification                                                                                     iii

Dedication                                                                                        iv

Acknowledgements                                                                          v

Abstract                                                                                            vi

Table of Contents                                                                                      vii


CHAPTER ONE: INTRODUCTION                                            1

1.1     Background to the Study                                                                  1

1.2     Statement of the Problem                                                                  4

1.3     Objectives of the study                                                            5

1.4     Research Questions                                                                 6

1.5     Significance of the Study                                                                  7

1.6     Scope of the Study                                                                            7

1.7     Definition of Terms                                                                 8


2.1.    Introduction                                                                            9

2.2.    Conceptual of Banking                                                            10

2.2.1. Need for Banking                                                                             13

2.2.2. Catalytic Role of Banks in Economic Growth                            14

2.2.3. The Role of Banks in the Economic Growth of Nigeria              17

2.2.4. The International Dimension of the Catalytic Role of Banks      15

2.2.5. Banking and the Financial Sector                                           18

2.2.6. Bank and Non-Bank Institutions

2.2.7. Role   of   Commercial   Banks   in   a Developing Economy      24

2.2.8. Developing Banking                                                               26

2.2.9. Genesis of Nigerian Development Banks                                   28

2.2.10.  Factors Inhibiting the Catalytic Role of Bank in Nigeria’s

Economic Growth                                                                     29

2.3. Theoretical Framework                                                              34

2.4. Empirical Literature                                                                            36

Summary of the Literature review                                                       39

CHAPTER THREE: METHODOLOGY                                                        

3.1.    Introduction                                                                            41

3.2     Research Design                                                                      41

3.3     Population and Sample                                                           41

3.4.    Data Collection                                                                       42

3.5     Data and Data Sources                                                            42

3.6     Data Analysis                                                                          42

3.7     Correlation Analysis is                                                            43

CHAPTER FOUR: RESULTS AND DISCUSSION                              

4.1.    Introduction                                                                            45

4.2.    Descriptive Statistics Results                                                  45

4.3.    Statistical Testing of Hypotheses                                            51


Discussion of Finding                                                                      58


5.1. Introduction                                                                               60

5.2. Summary of the Findings                                                                    60

5.3. Conclusion                                                                                 61

5.4. Recommendations                                                                      62

5.5. Suggestions for Further Studies

REFERENCES                                                                                64

Appendix I: Questionnaire




Background to the Study

The sectoral performance of commercial banks and economic growth in Nigeria cannot be over emphasized. Banking system can be traced back to the period of primitive trade-by-barter when commodity would be exchanged with another by two or more parties. Invariably, modern banking system started as the coin, cowries were issued to people as the receipt would be given to the beneficiaries. Later, Paper money was introduced and issued out in form of lending. The owner- Bank, now collected the repayment with interest. That is how the loan grant started. Bank accepted deposits from customers and issued Cheque for withdrawal.

The commercial bank was established in West Africa in the year 1894, under the name “The bank of west Africa”. The bank was jointly established by many of the of the largest British Bank namely 110yrs and the standard bank which is currently known as First Bank was in 1926 that backlay’s bank came to amalgamate with the national banking in South Africa, but most of the directives were coming from the headquarters United Kingdom (UK) records show that indigenous commercial banking started in Nigeria in 1950 with establishment of some industrial and commercial banks.

Acute miss-management of proper accounting and keen competition from two offer British bank did not allow indigenous bank to grow. Also revealed that in February 1933 Dr. Maja, Dr. Doherty and H. A Subar founded the national bank. The efforts of these three persons were later identified by the federal government that incorporated national bank in 1996. This was the beginning of indigenous banking in Nigeria.

In the year 1952, regulatory activities were made on commercial bank which came as first ordinance in 1957 while the view of establishing a central bank and having control over commercial banks as representation of the England. Mr J.B Loynes passed advisory report that formed the foundation for 1953. Nigerian banking ordinance application to indigenous and expert rate banks.

Today, Nigeria operates several commercial banks in the economy e g, First bank, Heritage bank, Wema bank, Sterling bank, Stanbic bank, GTB- Guarantee Trusting Bank and many others that work in collaboration with Central Bank of Nigeria CBN.

However, the importance of the financial sector of an economy, which  comprises banks and non-bank financial intermediaries, the regulatory framework and the ever increasing financial products, in stimulating economic growth is widely recognized in the literature on development economic. Schumpter (1934) in his seminal publication on the theory of economic development set the pace for the avalanche of other works on the interdependent relationship between banks and economic growth (Goldsmith, 1969; Fry, 1988; Patrick, 1966).

Through the process of financial intermediation, the financial sector act as the engine of growth and more so in emerging markets such as Nigeria where it is openly acknowledged that the provision of adequate financial resources is a sine qua non for the country’s industrial take-off, transformation and eventual economic prosperity.

The literature is also rich on the significance of banks in the growth and development of any economy.

Banks and other financial institutions all over the world act only as intermediation agent by mobilizing financial resource form the surplus units in an economy and channeling the same to the deficit units. The banking institutions do not own these resources but rather in accordance with the agency hypothesis, these institutions act as the risk managers of the funds. In performing this financial intermediation, banks also function as unique agents that combine the traditional intermediation function with the payment services. Thus, the industry is the enabling hub of national and global payment system by facilitating trade transactions within and amongst numerous national, regional and international economic units and by so doing, it enhance commerce, industry and exchange. As a catalyst in the process of economic growth, the Nigeria banking institutions have progressively become deep, broad and sophisticated in structure and operations. Over the last two decades the financial system, and the banking sector in particular, has undergone remarkable changes in terms of ownership and control of its operating institutions, the depth and breadth of its trading instruments, the number and distribution of established institutions, and the regulatory and statutory framework guiding the operations and transactionary relationships amongst the financial and other corporate economic entities within the system. As will be seen later in this project, the Nigerian financial system of which the banking industry constitutes the dominant sector, has been used for redirecting one or more of those vital variables for economic growth and prosperity of the country.

In the light of this, the research work is focusing on the activities within the banking industry of the financial sector of the Nigeria economy and their influence on other sectors of the economy through which there can be economic growth. The study will examine the financial implication on Nigerian economy and extent to which the governments undertake economic development as deliberate policy scheme to reposition the banking industry.

1.2 Statement of the Problem

The effects of financial sector on other sectors of the economy toward the economic growth of any nation cannot be over emphasized.

Many past literatures have laid emphasis on improvement in banking industry, reforms and various policies that have being put in place for growth in the industry; but is there any significant impact of these improvements, reforms and monetary policies on the economy of the country?

It has been emphasized that an economy will face underdevelopment or lack of development as result of poor finance arising from burdensome institutional debt, heavy operating expense and insufficient capital among other things, due to unfavourable fiscal and monetary policies of the country which may lead to a weak financial sector in the economy.

Merger and acquisition of some banks during the process of banks recapitalization on or before 31st December, 2014  has been seen by business organization as an alternative means of recapitalizing.

How has this synergy affected the economy positively is another issue to be considered. Pre-consolidation of Nigerian banking industry experienced 89 banks with 3,382 branches predominantly in the urban centers which are characterized by: low capital base, insolvency and illiquidity, poor asset quality, weak corporate governance, over dependence on public sector deposits and foreign exchange trading.

The various reforms in the banking industry have encouraged foreign investors to invest in the industry and the economy at large. Despite this, corrupt practices at public and private sector level is another impediment.

1.3 Objective of the Study

The objectives of the study are:

  1. to determine the impact of banks’ growth on the Nigerian economy.
  2. to examine the financial structure of the Nigerian economy and the recent development in the Nigerian financial sector.
  • to examine the contribution if any of the Nigerian financial sector to the real sector growth.
  1. To examine factors that could bring about financial deepening and economic growth.
  2. To determine the impact of recapitalization in banking industry on the development of commerce and industry, agriculture and educational sectors of the Nigerian economy.
  3. To determine the roles that merger and acquisition play on the development of commerce and industry, agriculture and educational sectors of the Nigerian economy.
  • To determine the effect of foreign investment through banks on the development of commerce and industry, agriculture and educational sectors on the Nigerian economy.

1.4 Research Hypotheses

Akpakpan (2003) defined hypothesis as a tentative answer to the problem. The following hypotheses will be formulated from the objectives and will be verified in the course of this research work.

Ho: That there is no positive relationship between bank and economic growth in Nigeria.

H0: That there is positive relationship between bank and economic growth in Nigeria.

H0: There is efficiency in Nigerian banking industry.

H0: There is no efficiency in Nigerian banking industry.


1.5 Significance of the Study

The significance of this study is to add to the general body of knowledge, enlighten the general public on the impact of banks’ growth on the Nigeria economy.

This information will enable the general public to judge if really the banking industry has impact on the economy and it will assist to enhance banks’ performance. It will also provide the basis for relevance on the banking industry.

The study will contribute towards the debate on the uniformity of banking operation and standard within the economy. It will also be beneficial to students and other academicians that will be making use of this research work.

1.6 Scope of the Study

The study investigates the sectorial performance of commercial banks in Nigeria from 2010 to 2020.. The study scope is limited to data gathered from Educational sector, Private Enterprises sectors and Public Organisation sector and return on asset as a measure for bank performance in Nigeria. It also looks deep to the annual loan granted by the commercial sourced from Central Bank of Nigeria in respect to the economic growth in Nigeria.

1.7 Limitation of the Study

Despite the importance of this research work to the economy, the quantity and quality of the study will be the problem of unreliability of data obtained from secondary sources. This is because data are often manipulated to suite political experiences.  Finance was another problem, which tends to limit the effort of the researcher. However, amidst the above problems, it was exciting and with diligence, the researcher was able to complete the work.


1.8 Definition of Terms

Growth: An increase in size and capacity of bank.

Banker: Section 41(1) of the Banking Acts of 1969 define a bank to mean “any person who carries on banking business and includes a commercial bank, and acceptance house…”

Development: The gradual improvement in the economy in order to become advance and stronger.

Merger: It is the combination of two or more separate firms into a single firm.

Bank Recapitalization: It is the act of supplying long-term funds of the owners of the bank to meet the requirement of monetary authority. Consolidation: It is the reduction in the number of banks and other deposit taking institutions with a simultaneous increase in the size and concentration of the combined entities in the sector.

Acquisition: It is where a company takes over the controlling shareholding interest of another company.



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