Role Of Commercial Banks In The Growth Of Manufacturing Sector

THE ROLE OF COMMERCIAL BANKS IN THE GROWTH OF MANUFACTURING SECTOR IN NIGERIA: A STUDY OF FIRST BANK

ABSTRACT

The main purpose of this research work is to examine the role of commercial Banks on the growth of manufacturing sector in Nigeria. The specific objectives are to determine the effect of commercial banks credit on the manufacturing sector, and also to assess the extent at which lack of bank’s credit has hampered

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After payment, text the name of the project, email address and your names to 08064502337 the efficient performance of manufacturing sector. Data were collected from secondary sources. The data were presented in tables. The techniques of percentages and frequency were used. Unit Root Test, co-integration test and error correction model were used in data analysis. Having analyzed the data the researcher found out that there is significant effect of commercial banks credit in the growth of manufacturing sector in Nigeria. The researcher recommended that the government should re-introduce commercial banks credit scheme so that beneficiaries can use them to run manufacturing firms. Central Bank of Nigeria should regularly organize seminars for potential manufacturers where they should be educated on how to acquire credits from banks how to plan, organize, direct and control their business.

CHAPTER ONE

  • BACKGROUND OF THE STUDY

In Nigeria, the efficiency of economic activities through public enterprises has been a contending issue. It has been generally agreed that the performance of public enterprises has been disappointing despite the huge financial resources invested in them. Moreover, public enterprises are negligible. This face leads support to increase in the rate of private sector through the growth of manufacturing industries in the economy. The tendency to boost private sector participation has a prominently shaped advice in the nation’s financial institution as well as the policy making process in Nigeria (Badawi, 2004).

However, the manufacturing sector is handicapped due to lack of fund to expand production activities. The role of commercial bank is critical to manufacturing growth. The commercial bank will aid the manufacturing sector by advancing loan at the cheapest rice or help them in sourcing the fund this invariably will increase the production activities of the manufacturing sector.

In view of the ambitious growth target that motivated macroeconomic policy making in developing countries, the potential effects of monetary policy austerity on the manufacturing sector ability to commit substantial capital outlays and various institutions to mobilize required savings have special attention (Naini, 2005). The importance of manufacturing in any economy is highly incontestable. However, this role cannot be effectively carried out without capital.

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Penrose (1963), in explaining the growth of manufacturing firms raised the issue of capital entrepreneurial power. The empirical literature in economic growth consistently shows that the rate of accumulating physical capitals or investment is an important determinant of economic growth. The studies on the determinant of invest in developing countries against the traditional theories of investment focused on the role of government policy and tried to derive a explicit relationship between the principal policy instruments and investment (Bljer and Khan, 1984). Peterson and Rajan (1992)state that small credit rationing because of potential lenders have little information on the management capabilities or investment opportunities of such firm and are unlikely to be able screen out poor credit risk, or to have control over borrowers investment. Inspired by the influential work of Mckinnon and Shaw (1973) and the structure Adjustment programme of the IMF and the world bank, the effect of various macroeconomic policy on the manufacturing sector through private investment in developing countries have drown much attention. Financial sector liberalization with interest rate reduction considered constitutes an integral part of this new economic policy. It is argues that, administered interest rate thus reducing the availability of loanable fund and expansion of manufacturing activities but also lead to insufficient allocation of resources and therefore financial sectors liberalization has been recommended (MCkinnon, 1973) world bank 1983.

Nigeria government and economic reformers are pursuing a market determined interest rate regime which does not permit a direct state intervention in the general direction of the economy. Nigeria during the deregulation era was not encouraging (CBN, 2003).

However high lending rate coupled with the general perception of manufacturing enterprises lack of the traditional bank collateral requirement meant that the manufacturing sectors access to former loan is limited.

  • STATEMENT OF THE PROBLEM

Commercial banks in Nigeria see the manufacturing sector as very risky and granting credit to the sector is justified in terms of risk and cost. This arises from difficulties in obtaining information on firm through financial condition and performance coupled with a weak and inefficient government which makes it difficult for banks to enforce contracts (Adebi and Babatope, 2004). According to Central bank of Nigeria (2004), this institution performed below expectation due to some affects the institution responsible for manufacturing sector. These constraints include

  1. The nature of small scale enterprises limits its accessibility to financial institutions.
  2. Inadeuqat3e infrastructures are responsible for the failure of commercial banks from adequate financing manufacturing sector.
  • The problem of poor funding and under capitalization considering the fact that the nation has recognized the primary importance of private sector through the manufacturing sector as an engine of the much anticipated economic growth.
  • OBJECTIVES OF THE STUDY
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The general objective of the study is to critically examine the role of commercial banks in the growth of manufacturing sector. Specifically, the objectives includes

  1. To determine the effect of commercial banks credit on the manufacturing sector in Nigeria.
  2. To ascertain factors influencing credit availability to the manufacturing sector in Nigeria
  • To determine how bank credit can be utilized by manufacturing sector to achieve a deserved economic growth.
  1. To determine relationship between economic growth and total credits of commercial bank on manufacturing sector in Nigeria

This study will seek to answer the following questions

  1. What are the effects of commercial bank credit on manufacturing sector in Nigeria?
  2. What are the factors influencing the credit availability to the manufacturing sector in Nigeria?
  • What are the factors that limits manufacturing sector in utilizing the bank credit
  1. What are the relationships between economic growth and total credits of commercial bank on manufacturing sector in Nigeria?

RESEARCH HYPOTHESES

To ensure the reliability of this study, it will be guided by the following

Hypotheses One

Ho: There is no significant effect of commercial banks credit on the manufacturing sector in Nigeria.

Hi: There is a significant effect of commercial banks credit on the manufacturing sector in Nigeria.

Hypotheses two

Ho: There is no significant factor influencing credit availability to the manufacturing sector in Nigeria.

Hi: There is a significant factor influencing credit availability to the manufacturing sector in Nigeria.

Hypotheses three

Ho: There is no significant achievement that manufacturing sector utilizes from bank credit on economic growth.

Hi: There is a significant achievement that manufacturing sector utilizes from bank credit on economic growth.

Hypotheses Four

Ho: There is no significant relationship between economic growth and total credits of commercial bank on manufacturing sector in Nigeria.

Hi: There is significant relationship between economic growth and total credits of commercial bank on manufacturing sector in Nigeria.

  • SCOPE OF THE STUDY

This work covers the period between 1970 and 2013. This is as a result of data available and to be able to ascertain the performance of the manufacturing sector before and after deregulation of the financial sector

  • SIGNIFICANCE OF THE STUDY

This study is relevant to the financial institutions because it will help them to recognize the effect of their bank credit to the growth and development of the manufacturing sector. It will also help the government to make implementation and enforce economic policies that will be beneficial to the private and manufacturing sector of the economy. Effective investments are needed to acquire modern machinery and equipment and appropriate technology, as well as upgrade the quality of the labour force and the environment. However, this requires a lot of funds which could be sourced from the banking system. This entails capital finance. Currently, the bankers committee is working on a proposal which will require banks to set aside 10% of their yearly profit for equity investment in small scale industries. This will be complemented with increased bank funding if the government can set up a credit guarantee scheme which will share in the risk of lending to the manufacturing sector. Popularization of use of the capital market for long term financial is also necessary (Anyanwu, 2004).

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Additional, it will help the society to recognize the benefits and usefulness of commercial banks to the growth and development of the manufacturing sector of which in turns helps to boost the standard of living of the population in the economy. Commercial banks through central bank of Nigeria are now being evaluated in spite of numerous economic reforms (Toby, 2013).

————- this an incomplete article ———– it’s a product of a high quality project  researched work.

 THE ROLE OF COMMERCIAL BANKS IN THE GROWTH OF MANUFACTURING SECTOR IN NIGERIA: A STUDY OF FIRST BANK OF NIGERIA PLC

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