THE EFFECT OF DEVELOPMENTAL BANKING SYSTEM IN NIGERIA ECONOMY

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

The banking industry is a significant and vital aspect of a country's financial system, and it is a key source of funding to businesses. a well-functioning banking system enables the interchange of goods and services, provides savings incentives, and effectively channels funds to productive investments (Levine, 1997). Banks, as financial intermediaries, are intended to offer a channel for customers to conserve money that would otherwise be spent on consumption. they are supposed to give loan facilities to entrepreneurs and other industrialists using the money they have amassed. as such, it encourages and supports more effective resource allocation in the economy. a strong, robust, and stable banking sector, in general, plays an important role in sustaining economic activity, facilitating economic growth, and guaranteeing financial stability.

Adelakun, (2010) wrote that the banking sector's importance as a significant engine of the Nigerian economy cannot be overstated. Over time, it has continued to foster financial inter-mediation both within and outside the country's borders. The degree of investment and capital accumulation in an economy is primarily dictated by the development of the banking sector. In Nigeria, successive governments have implemented policies aimed at fostering the continual development and strengthening of the banking sector in order to ensure the overall performance of the economy.

Levine, (1997) noticed that the financial system, in general, is more than merely organizations that process payments and offer credit. It includes all functions that direct actual resources to their final user. It is the core nervous system of a market economy, consisting of a number of distinct but interdependent components, all of which are critical to its successful and efficient operation. Financial intermediaries, such as banks and insurance firms, serve as key agents for accepting liabilities and obtaining claims. The second component is the markets where financial assets are traded, and the third is the infrastructure required for the proper interaction of intermediaries and markets (Adelakun, 2010). The banking sector provides credit to the real sector, which is the productive portion of the economy. To support its development agenda and strategic objectives, the government also raises cash through the banking sector.

When there is a strong and efficient payments system infrastructure, the financial system operates more efficiently and effectively. Furthermore, the Central Bank's responsibility for ensuring a stable banking system is highlighted by the essential role of banks in national economic development. Banks, for example, mobilize savings for investment, resulting in more development and jobs. The three elements are intricately linked. Banks require payment system infrastructure to securely exchange claims, as well as markets to hedge the risks associated with their intermediation operations.

1.2 STATEMENT OF THE PROBLEM

One of the most contentious problems in financial economies has been the link between banks and economic growth. Numerous studies have been conducted to investigate the relationship between financial system developments, particularly banking system development, and economic growth, beginning with the studies of King & Levine (1993), which emphasize the critical role of the banking system in economic growth. Some economists regard the function as little or insignificant, while others regard it as substantial. Levine, (1998), for example, contends that the financial system does not stimulate economic growth; rather, it just responds to developments in the real economy. A well-developed financial system or banking sector increases investment by recognizing and funding strong business prospects, mobilizes savings, enables risk trading, hedging, and diversification, and simplifies the trade of goods and services. They go on to say that all of this leads to more effective resource allocation, faster accumulation of physical and human capital, and fosters technical advancement, which leads to economic growth. However, research on the relationship between banking sector development and economic growth using different indicators across different time periods have generated inconsistent results.

1.3 OBJECTIVES OF THE STUDY

The main aim of this study is to assess the effect of developmental banking System in Nigeria Economy. Other aims of this topic are:

i.          To identify the effects of banking in Nigeria

ii.        To find out factors that influence developmental banking in Nigeria

iii.      To identify the effects of developmental banking on importation

iv.      To identify the effects of developmental banking on exportation

1.4 RESEARCH QUESTIONS

i.          what are the effects of banking in Nigeria?

ii.        What are the factors that influence developmental banking in Nigeria?

iii.      Does developmental banking have any effect on importation?

iv.      Does developmental banking have any effect on exportation?

1.5 SIGNIFICANCE OF THE STUDY

The study is essential in determining the extent to which Nigeria's developmental  banking system has been effective. This study will also be of benefit to the banking sector as the findings of this study will show the effects of banking on the importation and exportation sector respectively.

Finally, this study will be beneficial to scholars as it will serve as an existing material for further research and further reference.

1.6 SCOPE OF THE STUDY

This study will focus on the effect of Developmental Banking System in Nigeria Economy. It will also focus on the factors that influences developmental banking and the effects it has on the importation and exportation sector.

This study will be using staff of the Nigerian Agricultural Cooperative and Rural Development Bank as enrolled participants for the survey.

1.7 LIMITATIONS OF THE STUDY

This study will be limited to the effect of Developmental Banking System in Nigeria Economy. It will also be limited to the factors that influences developmental banking and the effects it has on the importation and exportation sector.

This study will be using staff of the Nigerian Agricultural Cooperative and Rural Development Bank as enrolled participants for the survey and this serves as a limitation.

1.8 DEFINITION OF TERMS

Effect: a change which is a result or consequence of an action or other cause.

Development: the process of developing or being developed

Banking system: A banking system is a group or network of institutions that provide financial services for us.

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