Deposit Money Bank Recapitalization And Small Business Growth In Nigeria

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Deposit Money Bank Recapitalization And Small Business Growth In Nigeria


Chapter One


Introduction

1.1 Background to the Study

Business like people, are not established equally. There are some organization in Nigeria that would be greatly missed if they ceased to exist, but life would go on. There are some business that if they fold up it would cause vast sections of economies and societies to implode. Into this second category falls the deposit money bank. Deposit money banks are the most important savings mobilizing and financial resource allocation institutions. Consequently, their roles make them an important sector and strong pillar in economic growth and development.

Deposit money banks which are also known as commercial banks are financial institutions that provide services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of activities deposit. According to mainstream theory, they act as financial intermediaries to channel savers’ money to firms and individuals who seek funding for their acts. Their importance as a catalyst to economic growth/development is widely recognized by both monetary and development economists. The financial system of Nigeria is dominated by the banking sector, especially the deposit money bank which provides the foundation for the development of financial system. Their credit component constitutes a major link between the monetary sector and the real sector of the Nigerian economy. In performing these roles, deposit money banks must realize that they have the potentials, scopes and prospects of mobilizing financial resources and allocating them to productive investments and, in return, promote sustainable performance and ensures that businesses are flourishing and alive.

They not only store our saved cash and lend us money when we need it, but act as the system of arteries that transport money around the economy, that is why they are often known as financial intermediaries. Hence their key function is to transfer money, en masse, from those who want to lend to those who want to borrow. In order for an economy whether rich or poor to function properly, it must have a well-developed and healthy deposit money banks. Why? The companies like medium and small scale enterprises and individuals need to borrow money to start business and subsequently to build decent, formidable and innovative businesses which constitute the launching pad for any meaningful growth in any developing economy and this is why Oluyemi (1995) regards the deposit money banks as an engine of growth of a country’s economy that could greatly assist in the promotion of rapid economic growth. The financial institution has also been described to be a catalyst for economic growth when it is well developed and judged to be healthy (Adeoye, 2007). A World Bank (1997) study emphasizes the role played by the banking sector in the process of financial integration in developing countries.

This is to say that deposit money banks are inseparably linked to economic growth of any nation. Figuratively, they are like the body and soul in the overall functions of the human person. Proper functioning of this banks leads to economic growth of a nation. They play an important role in economic growth of a nation. They are patterns of resources that aim to meet the needs of medium and small scale enterprises.


1.2 Statement of the Problem

In spite of the fact that SMEs have been regarded as the bulwark for employment generation and technological development in Nigeria, the sector nevertheless has had its own fair share of neglect with concomitant unsavoury impacts on the economy. In a seminar titled “Carer Crisis and Financial Distress- The Way Out”, the General Manager of Enterprise and Financial Support Company Limited, Mr. Oluseyi Oluboba, identified in his research that even though the problems of SMEs is much in Nigeria constrained access to money and capital markets is the main challenges faced with SMEs in Nigeria.

Secondly challenges that most deposit money bank in Nigeria face is the inability of the bank to meet its financial obligations to its stakeholders. This, in most cases, precipitates runs on banks, the banks and their customers engage in massive credit recalls and withdrawals which sometimes necessitate Central Bank liquidity support to the affected banks. Some terminal intervention mechanisms may occur in the form of consolidation (mergers and acquisitions), recapitalization, use of bridge banks, establishment of asset management companies to assume control and recovery of bank assets, and outright liquidation of non-redeemable banks. Bank consolidation, which is at the core of most banking system reform programmes, occurs, some of the time, independent of any banking crisis. There are so many reports of how Nigerian banks rip off their customers through various charges and practices. Often, customers complain and cry out for appropriate regulatory intervention. Unfortunately, their complaints seem to fall on deaf ears, because they are unaware of any positive regulatory action in response thereto.

In response to the aforementioned problems this research will investigate the influence of Deposit money bank (DMB) on growth of Small business in Nigeria and also the problems associated with DMB recapitalization and SMEs in Nigeria.


1.3 Objective of the Study

The main objective of this study is to find out the influence of DMB recapitalization on the growth of Small business in Nigeria, specifically the study intends to:

  1. Find out the relationship between deposit money recapitalization and growth of SMEs in Nigeria
  2. Investigate the problems associated with the DMB in Nigeria
  3. Find out the factors impeding growth of SMEs in Nigeria

1.4 Research Questions

  1. Is there any relationship between deposit money recapitalization and growth of SMEs in Nigeria
  2. What are the problems associated with the DMB in Nigeria
  3. What are those factors impeding growth of SMEs in Nigeria

1.5 Research Hypothesis

Ho: there is no relationship between deposit money recapitalization and growth of SMEs in Nigeria

Hi: there is relationship between deposit money recapitalization and growth of SMEs in Nigeria


1.6 Significance of the Study

This study when completed will be a valuable help to various stakeholders for implementations with the concerned efforts of all and sundry including: governments at all levels, SME promoters etc.

Policy makers:

It guides them in making policies and regulations that will create enabling environment for small and medium scale enterprises.

SMEs:

This study will enable them to identify the problems confronting the development of small and medium scale enterprises.


Deposit Money Bank Recapitalization And Small Business Growth In Nigeria


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Deposit Money Bank Recapitalization And Small Business Growth In Nigeria


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Frequently Asked Questions


Do banks deposits and interest rates affect economic growth in Nigeria?

It also revealed insignificant short and long-run effects of aggregate banks deposits on the growth of the Nigerian economy and furthermore, insignificant short and long-run effects of interest rates spread on the growth of the Nigerian economy.

Does financial deepening promote economic growth in Nigeria?

In their study, assessing financial deepening on economic growth in Nigeria between 1992 and 2008 using the vector error correction technique found broad money velocity and stock market liquidity fostering economic growth. However, money stock diversification, economic volatility and market capitalization failed to promote growth.

How can we increase the productivity of business in Nigeria?

Banks should intensify efforts to deposit mobilization to enhance the availability of loanable funds for on-lending as this will promote productivity of business and increase the per capita income of Nigerians. iii.

Why do businesses in Nigeria have no access to banks’ credit?

Most businesses in Nigeria have no access to banks’ credit due to poor accounting records, poor managerial skills, lack of credit worthiness and their inability to generate enough income to ensure loans repayment which is guaranteed at maturity date, so as to sustain a viable intermediation process.

Do aggregate banks affect the growth of the Nigerian economy?

The study was specifically meant to examine the impact of aggregate banks credits, aggregate banks deposits and effect of interest rates spread on the growth of the Nigerian economy. To achieve these objectives, Time series data were collected from the CBN statistical Bulletin using the desk survey method from 1984 to 2017.

What is the deposit interest rate in Nigeria?

Deposit Interest Rate in Nigeria averaged 9.45 percent from 1970 until 2021, reaching an all time high of 27 percent in September of 1993 and a record low of 2 percent in April of 1976. This page includes a chart with historical data for Deposit Interest Rate in Nigeria.

Do banks credit and interest rates spreads affect economic growth?

Consequently, the study concluded that neither banks credits, banks deposits nor interest rates spreads play any significant role in enhancing the growth of the Nigerian economy and the welfare of its citizens.

Does financial deepening promote economic growth in Nigeria?

In their study, [14] assessing financial deepening on economic growth in Nigeria between 1992 and 2008 using the vector error correction technique found broad money velocity and stock market liquidity fostering economic growth. However, money stock diversification, economic volatility and market capitalization failed to promote growth.

What is the leading indicator of economic growth in Nigeria?

Financial deepening is the leading indicator of economic growth. growth. The study also concluded that capital market and insurance companies in Nigeria. Finally, financial deepening variables are direct determinants of economic

What is the impact of stock market on the Nigerian economy?

It focused on the impact of stock market and bank deepening variables such as money supply, market capitalization, private sector credit and financial savings have on economic growth of Nigeria. Stock market provides the avenue through which long term fund could be raised for investment project.

Does financial deepening promote economic growth?

The financial sector has been found to promote economic growth by increasing economic efficiency, investment and financial deepening. Financial deepening refers to achieving a greater penetration of financial services to all levels of society. This study examined the impact of financial deepening on economic growth in Nigeria.

Does financial deepening cause liquidity problem for banks in Nigeria?

The study concluded that financial deepening does not cause liquidity problem for banks in Nigeria; rather, if well managed, can have positive effect on it.

Can electricity help grow Nigeria’s economy?

Electricity remains one factor that can help grow Nigerian economy. Electricity means everything, there can be no industrialization and economic improvement in Nigeria without Nigerians fixing its electricity. Once electricity is fixed it will encourage investment, and such investment will lead to economic improvement.

Why is Nigeria’s economic growth sluggish?

Nigeria’s economic growth is also constrained by insufficient electricity generation capacity, which results in a lack of a reliable and affordable supply of power. At the same time, Nigeria flares considerable amounts of associated gas, a by-product of offshore crude oil extraction.

Can Nigeria’s economy be improved by fighting corruption?

This is easier said than done, but the fact remain that if the economy of Nigeria is to be improved, Nigeria needs to be pragmatic in fighting corruption.

How can we help the government of Nigeria manage its gas sector?

To reduce gas flaring and increase generation of clean energy generally through greater private sector participation, we support the Government of Nigeria’s efforts to better manage the sector. If playback doesn’t begin shortly, try restarting your device.

What are the risks associated with credit access in Nigeria?

The risks associated with credit access in Nigeria stem from many causes. To secure a loan from financial institutions, collateral is one of the prerequisites. This protects the lending bank in case the borrower defaults on the loan. For MSMEs looking for small business loans, inadequate collateral is a major reason for not receiving loans.

Why can’t you start a business in Nigeria?

In fact, one of the major reasons that often kill great business ideas and perhaps the dreams of most Nigerian entrepreneurs is their inability to meet the requirements of obtaining a bank loan or accessing government loan or grants due to bureaucratic bottle necks. “Cash is cow and no business can run without it.” Usually,

How many MSMEs in Nigeria have been able to get loans?

According to The Credit Crunch, a joint report by the Central Bank of Nigeria (CBN) and the International Finance Corporation (IFC), of the 840 MSMEs surveyed in Nigeria, only 31 percent successfully obtained a loan from a bank or microfinance institution.

What is CBN doing to improve credit access in Nigeria?

The CBN recently established the National Collateral Registry to improve credit access in Nigeria. Additionally, it is supporting the development of a modern credit reporting system in Nigeria with backing from the World Bank. 

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