ABSTRACT
This study reviewed empirically commercial banks investment activities and its impact on the economic growth in Nigeria. The main objectives of the study were to ascertain the functions and investment activities of commercial banks in the Nigerian financial system. Data was collected from CBN statistical bulletin while regression analysis was applied. Findings revealed that R2 is 6.58% which shows that the variables are poorly fitted and banks investment in the Nigerian economy is below par. The standard error estimate was found to be statistically insignificant. The student’s t-test revealed led to the acceptance of the null hypothesis that Commercial Banks investment activities have no significant impact on the Nigerian economy. Moreover, the F-cal at 1.338306 indicates that the overall regression is statistically insignificant. Based on the findings, the study recommends bank should invest more in the productive sector such as manufacture, agriculture, tourism as this will help improve economic output and improve their profitability at the long run. Also, financial managers should look for more avenues to invest idle funds as this will increase their revenue base and shareholders wealth.
TABLE OF CONTENTS
Title……………………………………………………………………………i
Approval………………………………………………………………………ii
Dedication……………………………………………………………………iii
Acknowledgements…………………………………………………………iv
Abstract……………………………………………………………………….v
Table of contents……………………………………………………………vi
Chapter one
Introduction………………………………………………………………………1
1.1 Background to the study…………………………………………………1
1.2 Statement of the problem…………………………………………………5
1.3 Objectives of the study ……………………………………………………7
1.4 Research questions………………………………………………………8
1.5 Research hypothesis ……………………………………………………8
1.6 Significance of the study…………………………………………………9
1.7 Scope of the study………………………………………………………10
1.8 Operational definition of terms…………………………………………10
Chapter two
Review of related literature…………………………………………………….12
Introduction ……………………………………………………………………..12
2.1 Definition of commercial bank and the art of intermediation ………12
2.2 Theoretical framework ………………………………………………….13
2.3 Theoretical concept of investment ……………………………………26
2.4 The role of commercial banks in economic development …………32
2.5 Factors that determine commercial banks performance …………..34
2.6 The concept of credit creation by commercial bank…………………37
2.7 Banks lending conditions and considerations…………………………44
2.8 A review of commercial banks investment activities in Nigeria …….49
2.9 Factors affecting commercial banking in Nigeria ……………………60
2.10 Prospects of commercial banking in Nigeria …………………………63
Chapter three
Research methodology…………………………………………………………67
Preamble ….…………………………………………………………………….67
3.1 Source of data……………………………………………………………67
3.2 Method of analysis ………………………………………………………67
3.3 Model specification and formulation …………………………………68
3.4 Evaluation criteria ……………………………………………………….70
Chapter four
Presentation, analysis and interpretation of data…………………………..73
Introduction ……………………………………………………………………..73
4.1 Presentation of data……………………………………………………..73
4.2 Analysis and interpretation of data……………………………………74
Chapter five
Summary of findings, conclusion and recommendations………………..77
5.1 Summary of findings………………………………………..……………77
5.2 Conclusion……………………………………………………..…………79
5.3 Recommendations…………………………………………….…………80
Reference……………………………………………………………….……….82
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Investment is an essential component of aggregate demand and fluctuations in investment have considerable effect on economic activities and long-term economic growth.
Investment as key to economic growth as it stimulates activities which lead to increased capital formation needed for economic growth. Investment in key sectors such as manufacturing has the ability of transforming economies to a higher level of capacity utilization and productivity. Most macroeconomic objectives have been achieved through programmers and policies promoting investments in the various sectors (Kalu and James, 2019).
One of the principal functions of a bank includes investing directly or indirectly (giving credits). Thus, a bank is defined as “a place of business that lends, issues, exchanges and takes care of money extends credits and provides ways of sending funds quickly from place to place (Webster’s dictionary, 1995). According to Abaenewe, Ogbulu and Ndugbu (2019), the banking sector stands out in the financial sector as of prime importance because in many developing countries of the world the sector is virtually the only financial means of attracting private savings on a large scale.
The main three categories of bank scope of operations include accepting deposits, investing such deposits and the provision of credits to customers. By these ways, banks assist in mobilizing funds at their disposal for economic development in a nation. Through credits (loans and advances) and investment, business transactions are hitherto being financed for and on behalf of individuals and private enterprise, and of course, sometimes government agencies. In return, the bank charges interest on the loans or make returns from the investment. The interests constitute major source of their income. Such investment usually comes in form of partnership with companies or by buying shares in the companies. Thus, the principal objectives of banks in providing this service are to promote economic growth, banks profitability and liquidity to the economy (Solomon, 2019).
Commercial banks in Nigeria are generally all purpose retail banks. They mobilize funds at their disposal from various surplus economic units and lend to borrowers in deficit economic units for productive purpose. This is a major function of the commercial banks and it distinguishes them from other banks.
According to Pandey (2003) the main sources of working capital for commercial banks remain customer deposits and the major outlet is loans and advances. In order to make profit, commercial banks invest customer deposits in various short term and long term investment outlet, however core of such deposits are used for loans. Hence, the more loans and advances they extend to borrowers, the more the profit they make. On the other hand, investment is seen as the expenditure of funds lending to the creation of net addition to the stock of physical capital (Nnebedum, 2008). Banks as financial intermediaries are expected to provide avenue for people to save incomes not expended on consumption. It is from the savings they so accumulate that they are expected to extend credit facilities to entrepreneurs and other industrialists (Ekpenyong and Acha, 2019).
Thus, adequate savings ensure investment activities takes place without savings there can be no investment hence no increase in output to meet with increase in demand. It is therefore pertinent to state that the development of any nation’s economy is dependent on the value of savings and hence investment by citizens or foreigners reside in the country (Solomon, 2019).
