Project Materials

IMPACT OF COMMERCIAL BANK IN NIGERIA ECONOMY A CASE STUDY OF UNITED BANK OF AFRICAN (UBA)

Chapter one

INTRODUCTION

1.1 Background of the Study

Commercial banking in Nigeria is a subsector of the financial industry. According to Sanusi (2012), the financial system is more than just entities that process payments and provide credit.

It includes all functions that deliver real resources to their intended users. It is a market economy’s central nervous system, consisting of a number of distinct but interdependent components, all of which are required for its proper and efficient operation.

These components include financial intermediaries such as banks and insurance companies, who serve as primary agents for accepting liabilities and collecting claims.

The second component is the markets where financial assets are exchanged, and the third is the infrastructure that allows intermediaries and markets to interact effectively.

According to Adebayo (2003), commercial banks serve as financial intermediaries between surplus and deficit economic units in the economy.

Unlike specialised banks (merchant banks, development banks, and so on), commercial banks act as intermediaries in all sections of the economy, including the industrial sector.

According to Sanusi (2012), a strong and efficient payments infrastructure improves the financial system’s efficiency and effectiveness. Furthermore, the Central Bank’s responsibility for maintaining a stable financial system is highlighted by banks’ vital role in national economic development.

Banks, for example, mobilise savings for investment, which drives growth and jobs. The real sector, or the productive component of the economy, relies largely on the banking sector for credit.

According to Ekpenyong and Acha (2011), banks are meant to serve as financial intermediaries, allowing consumers to conserve income that would otherwise be spent on consumption.

It is predicted that they will lend credit to entrepreneurs and other industrialists using the savings they have accumulated. Despite the importance of commercial banks in Nigeria, the Nigerian industrial sector has not been a success story when compared to the Nigerian industrial sector.

According to Udoh and Ogbuagu (2012), the manufacturing component’s contribution has averaged less than 5% during the last two decades. Even the relatively high contribution of the petroleum oil sector to the industrial sector is primarily driven by crude petroleum extraction, rather than the associated ‘core industrial’ components such as refining and petrochemicals.

Wholesale and retail commerce and services have stayed relatively stable, whereas building and construction increased dramatically from 5.3 percent in the 1960s to 8.3 percent in the 1970s before falling steadily to 1.8 percent between 2001 and 2009. This gap in Nigeria’s industrial sector has persisted to this day (Adeyefa & Obamuyi, 2018; Olorunfemi, Obamuyi, Adekunjo, and Ogunleye, 2013).

However, industrialisation is seen as the primary driving force behind the contemporary economy in both developed and developing countries. Most economies rely on the industrial/manufacturing sector to provide goods and services, create jobs, and raise incomes.

As a result, the industry is frequently referred to as the centre of any economy. Unfortunately, the situation in Nigeria is different, since the secondary sector’s (manufacturing, building, and construction) contribution to total GDP has been fairly weak when compared to the other sectors of the economy (Adeyefa & Obamuyi, 2018).