ABSTRACT

In Nigeria, the banking sector is an important part of the financial system. It dominates the Nigeria financial system as it accounts for about 90% of the total assets in the system. This study is carried out to examine the impact of bank lending on economic growth in Nigeria. In addition, the objective of this study is to examine the impact of bank lending on economic growth in Nigeria for the period 199o to 2015. The study relies purely on secondary data, and using multiple regression models, the study found out that bank lending accounts for about 82.6% variation in economic growth in Nigeria for the period under study. The study conclude that there is a statistically significant impact of bank lending on economic growth in Nigeria. The study recommend that the federal government of Nigeria through the central bank of Nigeria (CBN) should strengthened the banking sector to ensure an improve credit flow to the activity sectors because of its strategic importance in creating and generating growth of the economy.
Keywords: Bank lending, economic growth, financial system, banks, banking sector, Nigerian economy, Gross Domestic Product (GDP).

TABLE OF CONTENT

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DECLARATION ii
DEDICATION iii
CERTIFICATION iv
ACKNOWLEGEMENT v
ABSTRACT vi
TABLE OF CONTENT vii

CHAPTER ONE 1
INTRODUCTION 1
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 3
1.3 OBJECTIVE OF THE STUDY 8
1.4 RESEARCH QUESTIONS 9
1.5 RESEARCH HYPOTHESES: 9
1.6 SIGNIFICANCE OF THE STUDY 9
2.7 SCOPE AND LIMITATION OF THE STUDY 10
1.8 DEFINITION OF TERMS 12
REFERENCE 13

CHAPTER TWO 14
REVIEW OF RELATED LITERATURE 14
2.1 INTRODUCTION 14
2.2 THEORETICAL/CONCEPTUAL FRAMEWORK 15
2.3 DEVELOPMENTS IN NIGERIAN BANKING SECTOR 17
2.4 SCOPE OF BANK LENDING AND INDICATORS OF ECONOMIC GROWTH 22
2.5 ORIGIN OF BANKING IN NIGERIA 23
2.6 NATURE OF LENDING BY COMMERCIAL BANK 24
2.7 BANK LENDING AND ECONOMIC GROWTH 25
2.8 COMMERCIAL BANK LOANS AND ECONOMIC GROWTH 26
2.9 SUMMARY OF THE LITERATURE REVIEW 28
REFERENCE 29

CHAPTER THREE 31
RESEARCH METHODOLOGY 31
3.1 INTRODUCTION 31
3.2 RESEARCH DESIGN 31
3.3 POPULATION OF THE STUDY 31
3.4 SOURCES OF DATA COLLECTION 32
3.5 DATA ANALYSIS TECHNIQUES 32
3.6 MODEL SPECIFICATION 33
REFERENCE 34

CHAPTER FOUR 35
DATA PRESENTATION AND INTERPRETATION 35
4.0 INTRODUCTION 35
4.1 DATA PRESENTATION 35
4.3 HYPOTHESES TESTING AND INTERPRETATION OF RESULT 38
4.3.2 Size of parameters 38
4.3.3 Apriori Expectation 39
4.3.4 Coefficient of Determination 39
4.3.5 Hypothesis Testing 39
4.4 DISCUSSION OF MAJOR FINDINGS. 42

CHAPTER FIVE 43
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION 43
5.1 INTRODUCTION 43
5.2 SUMMARY OF FINDINGS AND DISCUSSIONS 43
5.3 CONCLUSIONS 45
5.5 RECOMMENDATIONS 47
BIBLIOGRAPHY 49

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY

This study is expected to improve Nigeria economy and national development. Lending has steadily increased in Nigeria in many years ago. According to Dr. J. Orjih (1996) Element of banking, the saving mobilized by bank are invested in various way. One of the major ways of investing bank fund is by lending. The money which the bank collects from their customers are held by beak as debtors and the money is repayable on demand. As a result of the debtor’s status of the banks, they exercise prudence in handling the fund of depositors. They observe some principle are referred as cannon of bank lending which are basic factors which a banker should put into consideration before granting loan and overdraft to customers.
There has been a growing concern on the decline of the output of the manufacturing sector in Nigeria in recent times, despite the fact that the government embarked on several strategies aimed at improving industrial production and capacity utilization of the sector. This worry is understandable in view of the fact that it has been generally acclaimed, through the Kaldor’s first law, that manufacturing sector is regarded as the engine of growth of the economy (Libanio, 2006). The unimpressive performance of the sector in Nigeria is mainly due to massive importation of finished goods and inadequate financial support for the manufacturing sector, which ultimately has contributed to the reduction in capacity utilization of the manufacturing sector in the country. Enebong (2003) argued that the level of the Nigerian manufacturing organizations’ performance will continue to see a decline because as it is now, the manufacturers will have even more problems in assessing raw materials due to stiff competition from the foreign firms. Economic growth entails positive change in the national income or the level of production of goods and services by a country over a certain period of time (Oluitan, 2009). Economic growth is measured in terms of the level of production within the economy, factor productivity, technological change, physical capital accumulation and real Gross Domestic Product, (GDP) (Odedokun 1998; Allen & Ndikumama 1998; King and Levine 1993). According to Bencivenga & Smith (1991), consumption of goods in the economy is produced from capital and labour. Capital is usually mobilized from either personal savings of entrepreneurs and/or loans from banks. This makes banks loans relevant to economic growth of countries. Research findings have revealed that bank loans can be a causal factor for economic growth. For instance, according to Bayoumi & Melander (2008), a 2.5% reduction in overall credit causes reduction in the level of GDP by around 1.5%. Demetriades & Hussein (1996) who studied 13 countries supported the causal relationship between bank loan and economic growth, but argued that the causality is time and country bound specific rather than general.

1.2 STATEMENT OF THE PROBLEM

In Nigeria, there is detailed information about Nigerian banking industry and its activities, but little information is available about how bank lending specifically affect economic growth (Oluitan, 2009). The financial system consists of institutions like banks, insurance, stock market, and other financial institutions. The banking sector dominates the Nigerian financial system as it accounts for about 90 % of the total assets in the system and about 65 % of market capitalization of the Nigeria Stock Exchange (Soludo, 2009a). However, the banking sector has not contributed significantly to the growth and development of Nigerian economy as expected. The poor performance of the sector has been attributed to numerous problems that faced the sector such as inadequate capital, high nonperforming assets which had led to frequent distress in the sector and collapse of some banks in the past (Sanusi, 2012). If banks cannot grant loans to the deficit economic units within their immediate operational environment, the business sector will not grow, deposits will be limited and this will hinder the ability of banks to generate income (Galac, 2001: Honohan, 1997). For most banks, loanable funds account for about fifty percent or even more of their total assets and about half to two-thirds of their revenue (Udoka and Effiong, 2006). This made lending the first and most important function of banks. The function is considered important due to number of reasons. First, the general public or customers use lending in assessing banks stability. Banks that are willing and able to give out loans are considered more stable than those that mostly reject loans proposals of their customers.
Lending is regarded as part of legal requirement by the monetary authority, which may stipulate certain percentage of bank lending to some sectors like agriculture, small scale industries etc. Third, lending is use as tool in implementation of the monetary policies of government, which affects money supply and demand in the economy. Fourth, lending affects pattern of production, level of entrepreneurship and consequently, aggregate output and productivity. The last and the most important reason why the lending function of banks is crucial and important in every economy is that it is generally accepted that there is positive relationship between bank credit and economic growth (Oluitan, 2009).
This research work is aimed at finding the effect of commercial bank lending on economic in Nigeria. Over lending May lead to
misappropriation of fund and subsequently difficult in repayment: Few Nigerians are interested in utilizing commercial bank credit facilities and consequently poor banking habit among the populace.
Misuse and mismanagement of facility: the lender should ascertain whether the requisition is in the preferred or less preferred sectors of the economy. The bank has to ensure that the lending is a profitable one before embarking on it.
Integrity and reliability of the customer: the customer to whom loan should be granted must be one who is very reliable and has to be of unquestionable integrity. The lending banker has to request for information about the customer to guide him in making decision on lending proposal.
Security/collateral: this factor is considered last after the customer has passed other test. Security is what the bank will fall back to if all other considerations fail to work according to expectation and repayment becomes doubtful.
Non-performing loan (NPL): non performing loan (NPL) generally refers to loans which for relative long period of time do not generate income; that is the principal/or the interest on the loans has been unpaid for at least 90days. Non performing loan reduce the liquidity of banks, credit expansion, it slow down the growth of the real sector with direct consequences of the performance of banks and the firm which is in default and the economy as a whole.
Bank regulation: bank regulation is a form of government which subjects banks to certain requirements, restriction and guideline designed to create market transparency between banking institutions, individuals and corporations with whom they conduct business among other things which include:
a. Minimum requirement: a national bank regulator imposes requirement on bank in order to promote the objectives of the regulator. Often, these requirements are closely tied to the level of risk exposure for a certain sector of the bank. The most important requirement in banking regulation is maintaining capital ratios.
b. Capital requirement: the capital requirement set a frame work on how banks must handle their capital in relation to their assets.
c. Reserve requirement: the reserve requirement sets the minimum reserves each bank must hold to demand deposit and bank notes.
d. Monetary policy: monetary policy is the process by which the monetary authority of a country like the central bank or currency board controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

1.3 OBJECTIVE OF THE STUDY

The main objective of the study is to examine the impact of bank lending on economic growth. Other specific objectives include the following:
1. To examine how lending note affects GDP.
2. To examine how total loans and advances affects GDP.
1.4 RESEARCH QUESTIONS
The questions this study intends to give answers to are:
1. How does lending rate affects GDP
2. What is the impact of total loan/advances on GDP.

1.5 RESEARCH HYPOTHESES:

HO1: There is no significant relationship between lending rate and GDP.
HO2: There is no significant relationship between total loan/advances.

1.6 SIGNIFICANCE OF THE STUDY

The researchers consider the study very significant on the following basis.
The banking sector and industry will benefit for, the study since the recommendations will help the banking sector serve the better. The finding of the study will enable banking sector solve their problems relating to money lending and economic growth and as well as correct whatever mistakes they have made or are still making in line with their operations. The study will also help future researcher in area of literature on the field of bank lending and economic growth. . There is growing recognition that the banking industry especially the bank must play a greater role in economic growth in the country. In the light of the above, this study will go a long way in bringing to light the problem and prospect of Nigeria economy as an exponent of commercial bank lending; whereas the problem will on being identified become half way solved and the prospect one being recognized will be encouraged to be improved on.

1.7 SCOPE AND LIMITATION OF THE STUDY

This study is on the impact of bank lending on economic growth. It covers the year between 1990-2015. The researcher will examine the impact of bank lending on economic growth.
Bank lending refers to funds granted to individuals and organizations to meet their temporary or long- term v deficit operations (Mbat, 2006). Bank lending includes Short, Medium and Long Term Loans and Advances.
Bank lending can be categorized in to two: lending to the private sector and lending to the public sector. It has been empirically proven that lending to the public sector is weak in generating growth within the economy because it is prone to waste and politically motivated projects which may not yield or deliver the best result (Oluitan, 2009). This position is supported by Crowly (2005) and Boyreau-Debray (2003). Beck, Demirguc-Kunt and Levine (2005) maintain that lending to the private sector make more impact on economic growth than the one to the public sector. Based on this undisputable fact, the study will concentrate on the impact of bank lending to the private sector.

1.8 LIMITATIONS OF THE STUDY

There were certain limitations that the researcher encountered in the course of carrying out this study. They include:
Financial constraint: financial constraint which limited the scope of the study on bank
Time constraint: a research of this nature certainly required a lot of time to make the research a complete one.
Political instability and government policy on bank lending are considered to have strong effects on bank lending

1.9 DEFINITION OF TERMS

Lending: Lending is the way of investing bank funds
Fund: This is to extend a debt over a long period at a fixed rate of interest
Economic Development: This is a process whereby a country real capital income increases over a substantial period of time due to increase in various productivity of various sector of economy.
Bank Lending: This term is used in banking system in which the banner arranged with its customers to secure credit facilities. Therefore, the borrower is expected to pay interest on the amount borrowed.
Economic Development: – An overall trend or process in which socio-economic is socio-political transformation is achieved with little or no reference to other significant degree of technological economic growth plus changes.