Effect Of High Bank Lending Rate On The Manufacturing Sector Of The Nigeria Economy

Project and Seminar material for Banking and Finance

Project and Seminar material for Banking and Finance


The manufacturing sector of the economy is, for obvious reasons affected by the unprecedented increase of bank lending rate to borrowers.

This bank lending rate increase has been there since lates 1900s till date. Without doubt, one would believe that the economy generally and the manufacturing sector in particular have been suffering this ugly development.

To appraise the effect of this situation, prompted this study so as tp determine its effect on manu8facturing sectors capacity utilization, product pricing and sectors profitability.

For the purpose of this study, the study is divided into five chapters thus:-

  • Chapter one took care of the introduction, this chapter is divided into eight sub- heads. For obvious reasons.
  • Chapter two carried the literature review, which also is divided into four cler sub-heads for easy understanding.
  • Chapter three held the research methodology. Here the design for date gathering is explained. It also carried the sample size, instrument for date collection and the method of data analysis which is the chi- square.
  • Chapter four of the study carried the presentation and analysis of data and the testing of hypothesis.
  • Chapter five as a matter of fact carried the summary of findings, conclusion and the scholarly recommendations.

Table Of Content

Preliminary Page(s)

  • Title page
  • Approval page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table f content

Chapter one

1.0 Introduction

  • 1.1 General overview of study
  • 1.2 Statement of problem
  • 1.3 Objective of the study
  • 1.4 Scope of the study
  • 1.5 Statement of hypothesis
  • 1.6 significance of the study
  • 1.7 Limitation
  • 1.8 Definition of terms.

Chapter two

2.0 Literature Review

  • 2.1 Introduction
  • 2.2 Definition and meaning of concepts:-
  • Bank, bank- lending, manufacturing sector and economy
  • 2.3 Effects of high bank lending rate on manufacturing sector
  • 2.4 The role of the manufacturing sector in Nigeria economy.

Chapter three

3.0 Methodology

  • 3.1 Research design
  • 3.2 Population of the study
  • 3.3 Sample size
  • 3.4 Instrument for data collection
  • 3.5 Method of data collection
  • 3.6 Method of data analysis

Chapter four

4.0 Presentation and Analysis of Data

  • 4.1 Data presentation
  • 4.2 Analysis of data
  • 4.3 Testing of hypothesis

Chapter five

5.0 Summary, Conclusion and Recommendation.

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • 5.4 Bibliography
  • 5.5 Appendix

Chapter One

1.0 Introduction

1.1 General Overview Of The Study

Granting that no counting of the world can ever attain an expected level of economic development without a veril and highly productive manufacturing sector, makes it imperative that Nigeria as a developing nation must pursue policies aimed at stimulating a rapid industrial growth capable of increasing the productivity of the manufacturing sector, and thus improve national economy.

This very important sector transforms our numerous raw materials into marketable finished products that are required in our daily existence as a people, and as a nation.

The sector generates foreign exchange through the exportation of its finished products.

Realizing the importance of this sector, Nigerian government had before now, made concerted efforts to give reasonable support and assistance to the realization of the growth of the manufacturing sector in Nigerian economy.

In this view, one of the foremost efforts was the establishment of investment company of Nigeria (ICON) limited. According. According to Osubor (1984)

“ The company which was established in 1959 to be responsible for executing and managing major industrial schemes and to focus thought and activity on non- government development by brining investment opportunities, capital and management together”.

This investment company of Nigeria Ltd, according to Osubor, operated for abut three years (1959-1962) when the federal government set in motion the machinery for the establishment of a development bank to help the investment company of Nigeria carry out major capital projects.

Based on this, the Nigerian industrial development bank (NIDB) was born in the year, 1964. the principle aim being to help in the fiancé of enterprises to help in the fiancé of enterprises or industries in Nigeria carryout major capital projects. Based on this, the Nigerian industrial development bank (NIDB) was born in the year, 1964. the principle aim being to help in the fiancé of enterprises or industries in Nigeria.

Another Laudable effort towards the promotion of the manufacturing sector was the 1972 indiginization decree under Yakubu Gowon’s administration which exclusively reversed some businesses for Nigeria, and increased their participation in the ownership, and management of the enterprises.

However, Oresotu (1991) opined that the indiginization policy was poorly managed especially as some foreigners used Nigerians as fronts to evade necessary regulations.

Towards this end, it is acceptable that the oil boom of early 70s greatly improved Nigerian’s economy and earned her industries needed foreign exchange to import raw- materials.

Regrettably, this boom changed drastically in the 80s with the dwindling oil revenue. The effect, however saw the folding up of some industries, thus negatively affecting the manufacturing sector of the economy. The harsh economic situation of the time wholly informed that other sectors should be opened so as the supplement the poor oil revenue. This unpleasant economic condition got worse with military leadership which was considered unstable.

In reaction, Orulade (1984) noted that this led to the introduction of the structural adjustment programme (SAP) by the desperate Babangida’a regime in July, 1986. the aim according to Orulade being to make local industries less dependent on imports, but to rather source raw- materials locally.

Yet, the manufacturing sector remains the most wanted sector to supplement the foreign exchange earnings of the oil sector through exportation of their finished products.

Never- the –less, military regimes are known not to offer enabling environment for effective industrial growth.

But, with emergence of a democratically elected government in May, 1999. the Nigerian nation, started the creation of enabling opportunities and environment to promote the gradual development of the manufacturing sector no wonder Obasnajo (1999) in his inaugural speech at his swearing in ceremony promised to revertilize the manufacturing sector to make it more productive.

However we must realize that the manufacturing sector of the economy has been the most unfortunate and hardest hit by the high interest rates regime. Odimaya (1992) reported that “banks no longer want to lend on long- termswhich is the stock in trade for manufacturing firms. Even when the banks lend on long- terms, it is usually at cut- throat interest rates”.

This situation has continued to effect the manufacturing sector, even in this democratic dispensation. With the federal government economic policy of deregulation of the banking sector. This condition, according to Kazeem (2004) has greatly affected the manufacturing sector.

This opinion of Kazeem is made stronger when he wrote “for the banks the 23 percent lending rates continue to threaten the tripartite agreement reached by the federal government, the CBN and the Banks that lending rates should not be more that four percent above the Minimum rediscount rate”.

The above agreement was to encourage bank- lending to industrial and so, stimulate the manufacturing sector development and improvement of the larger national economy.

Infact, high lending rates regime of banks have continued to receive unfavourable criticisms from economic experts. In this regard, Kazeem (2004) recorded the reaction of Mr. Clement Olowokande, chairman of the economic policy committee of the manufactures association of Nigeria who said “despite the above policy position, the authorities were yet to articulate a sustainable long- term interest rate regime, which would guarantee rapid industrialization in line with developmental objectives.

Based on this pathetic and highly unfavourable economic climate in which manufacturing/ industrialist operates in Nigeria, prompted my choice of this topic “effect of high Bank lending rate on the manufacturing sector of the Nigeria Economy (1999-2003).

1.2 Statement Of The Problem

The major problem of the study is the seemingly under developed state of the manufacturing sector.

Also, it is the problem of the study to address the instability in the lending rates to manufactures

The last concern of the study is the lack of sustainable capital for the manufacturing sector, due to unpredictable high bank lending rates regime.

1.3 Objectives of the study

The study is to ascertain the impact of high banks lending rates on the manufacturing sector.

The study also aims at making recommendations capable of helping the manufacturing sector obtain funds at affordable interest rates to enhance their operations, and so, helping the development of the economy.

1.4 Scope Of The Study

This study is designed to cover the activities of banking operations in relations to the industrial sector, via bank lending rates and borrowing by the manufacturing sector.

Again, the study will cover the effects, of high bank rates to the industrial/ manufacturing sector for the period of beginning from 1999 to 2003.

This study is however limited to Owerri Municipal council Area.

1.5 Statement Of Hypothesis

This study, for obvious reasons will be carried out based o the following hypothesis.

  1. There is significant relationship between high lending interest and capacity utilization.
  2. There is dependable relationship, between high lending rate and product pricing.
  3. There is significant relationship between high lending rates and manufactures profitability.

1.6 Significance Of The Study

This study significance could reflect in a number of ways. In the first place, it could help to appraise the relationship between the banking sector and the manufacturing sector towards the economic development of the nation.

Secondly, the study could make things clearer to workers in both sector to realize their co- operative relationship in the upward movement of the economy.

Thirdly, the study would make the masses realize the relevance of the sectors in the overall development of our national economy.

Fourthly, to the educatinists and researchers, this study could serve as a reference materials.

Finally, to the government, this study could throw more light on how government could effectively utilize the roles of the two sectored in economic development of the nation.

Also, recommendations of the study could make CBN realize how to use policy. Concerning lending rates to strike a good balance between the sectors and so, facilitate national economic development.

1.7 Limitation

This study by implication, focused on the effect of high bank lending rates on the manufacturing sector of the Nigerian economy.

To achieve the above, the researcher had some constraints which included traving to company headquarters for obvious information, sometimes, lack of und inhibited the intended desired moves. The researcher encounter lots of rad risks.

Some library workers were not friendly, hence retrieval of needed information at times proved difficult.

Some respondents were really very reactant to give required data. However, due to gods design the researcher beat the odds, and made the study.

1.8 Definition Of Terms

The following terms which formed the key words of the topic and other constantly used in the study are here under defined.


According to osubor (1984) “ A bank is a financial house established for the purpose of accepting deposits and other precius commodities from the public for safe keeing as well as acting as intermediary between owners of deposit funds and lenders or users of the funds.

Manufacturing Sectors:

This is the sector of the economy which include all the firms that transform raw- materials into finished goods with the aid of machinery.

Interest Rate

This refers to the price which the brrower of fund must pay for making use of the borrowed fund.

Bank Lending Rate

The term can be dfined as the percentage of the borrowed funds, a customer must pay to the bank for use of the borrowed fund. It is equally, the intrest which accrucs to lender (the banker) receives for parting with its money for a specified period of time.

Capacity Utilization

This means the extent to which installed factory machines are utilized in the production of goods.

Finished Products

These refers to the goods produced by the manufacturing sector for final consumption. E.g Beverages, Shoes, Drugs, Boxes and furniture’s. They are also called consumer goods.


These refer to owners of industries and companies that make up the manufacturing sector.

Chapter Five

Summary, Conclusion And Recommendation

5.1 Summary

It is the finding of this study that there exist an economic relationship between the bank and the manufacturing sector. The imperative of this relationship lies on the fact that the manufacturing sector gets funding from the banks for an agreed interest rate.

However, the study discovered that the high interest rate the bank attaches to the loan given to the industrialists affects the manufacturing sector adversely especially the capacity utilization. The acceptance of hypothesis one of the study after the due chi- square analysis proved the above point.

Furthermore, the study found that due to the high lending rate manufacturers pass through for bank loan. The prices of their product have always being on the high side. This development as a matter of fact, affects the marketability of the products due to high pricing.

This discovery was proved correct with the acceptance of hypothesis two of the study after necessary chi- square analysis.

Be it as it may, the study found that banks high lending rate to manufacturers caused multiple deviating affects to the manufacturing sector. In the first place it has negatively affected their capacity utilization, the product pricing and patronage were also effected. Worst still, the bottom line trust of the study lies in the discovery that the high lending interest by banks to manufacturers grossly affected the later profitability and so, affecting the economic growth of the nation entirely. This is more irritating aa the third hypothesis of the study tested correct.

5.2 Conclusion

IN the course of this very challenging study:- “Effect of high bank lending rate on the manufacturing sector of the economy”. The researcher discovered that the economy is a network of connections between one sector and the other. That is to say, that in economic functioning a sector like the manufacturing sector highly depends on the banking sector for the operational capital, after the payment of a moderately acceptance interest rate. According to the study, as long as the interest rate remains at moderate level, the manufacturing sector will steadily maintain her relationship with banking sector inhibited. Equally, that tempo will progressively enrich the economy.

Towards this end, it is the conclusion of the study that the banking sector is the independent variable which determines the progress or otherwise of the manufacturing sector which serves as the dependent variables of the study.

Finally, the study discovered that the bank high lending rate is not in any way favourable to either the manufacturing sector in particular or entire economy at large.

Nevertheless, the researcher strongly believes that if the recommendations of the study can be appropriately applied. The problem would be greatly ratified.

5.3 Recommendations

Having carried out this study and discovered that the high lending rate from the banks are economically uncomfortable, the researcher therefore prefers the following recommendations.

  1. That the banks should realize that the manufacturers are quality customers who should be treated as patrons.
  2. That the bank rate should be a resulted of business dialogue better than two sector. Where the manufacturer accepts the interest rate as a result of business dialogue with the banker, and not as a fixed sector and the economy at large.
  3. The banks in fixing their lending rate, should recognize the small scale industries who requires the support of the banks and other related sectors to survive.
  4. The manufacturers should evolve a more reliable way of utilizing and managing borrowed money for the desired progress of the firm and the growth of the economy.
  5. The banks should make interest rate for micro credit accruing to small and medium scale industries very minimum so that they can maximally exploit this incentive for economic growth.
  6. The bank should realize that they are prime factor in the development of the national; economy. That their lending to other sectors is primarily designed to stimulate their h
  7. Growth and the progress of the larger economy. Hence the introduction of high lending rate may run counter to the above national economic objectives.
  8. Finally, bankers should also realize that the money they have is public fund and they should effectively use it in trade for the progress of the national economic development. That moderate lending rate is ideal and can always attract more borrowers unlike high lending rate that will scare the borrowers, and so make the money demand deposited in the banks at the detriment of manufacturers and the economy.

Effect Of High Bank Lending Rate On The Manufacturing Sector Of The Nigeria Economy

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