ABSTRACT
The study focused on factors which affect the deposit
mobilization operations of commercial banks in Nigeria, particularly the Union
Bank of Nigeria Plc. The study tried to find out the relationship between total
volume of commercial bank deposits and interest rate, inflation rate, loans and
advances and the number of bank branches.
The study relied primarily on secondary data published by
official sources. The diagnostic statistic used in the study was the ordinary
least square (OLS). From the study, it was found out that all the independent
variables were positively related to bank deposit (dependent variable).
The result also shows that there is a positive and
moderately significant relationship between bank deposit and loans and advances
with a coefficient of 0.53. Hence, loans and advances is inelastic to bank
deposit. Number of bank branches has a positive but weak relationship with bank
deposit and is also inelastic in nature. Inflation rate has a positive – weak
relationship with bank deposit, while real interest rate has a negative – weak
relationship with bank deposit with the value of -0.05
From the value of the
t-statistic, the coefficients of the four explanatory variables were all
significant and the probability of rejecting any of them was less than 1%. The
standard errors for the four explanatory variables were all very low. Hence, all
the variable coefficients were all significant and accepted. Based on the
findings, my recommendation therefore, is that inflation rate which is
currently standing on 1 digit contrary to what it was from 1991 – 2005 has
reduced its severe constraint on agricultural and industrial sector, thus,
advantage should be taken on this by banks to direct loans towards these
sectors of the economy.
Also, interest rate which
when increased encourages savings that would eventually lead to improved bank
deposit, should be given priority.
It is clear from the study that the more the branch
network, the higher the deposit mobilized which implies that the number of bank
branches affects the bank deposit and positively too. Therefore, there should
be a proliferation of bank branches both in the rural and in the urban areas.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND TO
THE STUDY
In a developing country like Nigeria, the role of banks and
other financial institutions cannot be over emphasized. Banks play the
middle-man role of channeling funds from the fund surplus sectors to deficit
sector of the economy which is of immense benefit to the even growth of the
economy. To achieve its objectives, the banking industry has to develop well
articulated guidelines and policies geared towards effective utilization of
scarce funds.
This research work setout to evaluate the determinants of
banks deposits in Nigeria. Bank deposits are accounting entries showing the
credit balance in favour of a customer. In other words, banks deposits are
funds (money) deposited with commercial banks with a view to earning some
interest and also for safe keep over a period of time.
The origin of bank deposits can be traced to the Bank of
England (London) and the goldsmith who because of the nature of their business,
had facilities to store valuables. The goldsmiths accepted deposits (gold) from
merchants who had no safe place for the safe keep of their valuables or money.
Later, the receipts issued by goldsmiths for deposit were used by the merchants
as means of payments by transferring the claim on the goldsmith to the holder
of the receipt.
In 1844, the bank of England assumed the monopoly of note
issue. With this development, early bankers issued bank notes of fixed
denomination which were more widely acceptable. There came a point in time when
bankers began to lend money to their customers.
This was made possible by the fact that since cash or piece
of gold held by Mr. A was quite the same as the piece of gold held by Mr. B,
the deposits could be lent to other people before maturity when the depositor
could be repaid with new deposits from other customers. This anonymity really
helped in the development of the banking system. Consequently, the
increasing use of bank notes meant that fewer people would withdraw their
deposit in cash from the banks. Banks therefore found it safe to lend out, at
interest, some of the money deposited with them.
When bankers found out that lending out money proved to be a
profitable business, they began to offer inducement in form of interest to
depositors in order to encourage people to increase their deposits. Following
this outcome, bankers began to lend out their own notes and with experience,
they were able to know how much cash they ought to keep in their vault to meet
customer’s withdrawal demands. They later realized that not all customers would
come to withdraw their deposits, and so they can predict the margin of safety
(percentage of cash to deposit) in order to avoid any friction in the process.
The Nigerian Enterprises Act of 1972 otherwise known as the
Indigenization Act was promulgated with the sole aim of encouraging indigenous
business ownership and control. One of the problems envisaged in the course of implementing the Act
was inadequate finance with which to fund the businesses to be taken over from
foreigners by indigenous business men. The inability of individual business men
to single-handedly finance their business activities gave rise to the need for
extension of credit facilities through customers’ deposits by commercial banks.
Commercials banks as it were, perform two basic functions
namely; acceptance of deposit from the public and lending out money deposited
to the public.
The deposit function according to Aladeje Ojo (1982) includes
savings deposits, current deposits and time deposits.
Savings deposit are deposits of individual institutions,
cooperate bodies and government who want to save on regular basis operated
through the use of passbooks, withdrawal slips, and identity cards.
Banks currently pay interest of between 2% - 5% annually on
this account in Nigeria.
Current or demand deposits are operated with the use of
cheques. The deposits are payable on demand or to the order of the customer
without giving any notice of withdrawal. Customers that operate this account
have access to credit facilities like loans and overdrafts. However the
customer is made to pay for the services rendered by the banks to them in the
form of commission on turn over (COT).
Time deposits are equally operated by individuals,
institutions, firms and government. Time deposits attract fixed interest for
customers because the money is deposited for a fixed time period.
1.2 STATEMENT OF THE
PROBLEM
The study of bank deposits has been of interest to many
scholars, investors and government in particular. That is why this work was
conceived to take a critical look at the determinants of commercial bank
deposits in Nigeria with particular reference to Union Bank of Nigeria Plc.
It is an established fact that the major objectives of
monetary and banking policies sector in any economy is to mobilize domestic
financial resources by financial intermediaries which specialize in bridging
the financial gap between savings surplus and savings deficit sectors. In that
process, banks facilitate the optimal allocation of surplus funds.
But despite this intermediary function, studies and facts
over the years have revealed that a large quantum of money is still trapped
outside the banking sector. That is, a large number of people still prefer to
live the crude way of keeping money under the carpet and with a number of
non-formal financial institutions (such as thrift collectors, local
cooperatives and likes).
Against this background, this study seeks to find out how
banks mobilize deposits by extending loans and advances to prospective
investors as well as identifying the factors that influence bank deposits.
Also, it is the interest of this research to examine how the
interest rate influences bank deposits in advanced countries relative to the
impact in developing countries.
Studies like the determinants of structural shift in
commercial bank deposits in Nigeria by A. Oyejide and A. Soyode (1998) has
formed part of the major reference materials for this study. The study shall
indicate how the flow of savings, and efficient credit mechanism coupled with a
balanced range of viable investment options depend on the ability of commercial
bank to mobilize deposits and to manage such deposits efficiently.
1.3 OBJECTIVES OF THE STUDY
The objectives of this research work are as follows:-
To provide a working definition of the concept of bank
deposits
To update the information content of existing studies on the
determinants of bank deposits
To identify the factors which determines bank deposit in the Nigerian economy and quantify the relationship established
To determine the effect of bank deposit on credit creation in
the Nigerian economy
Finally, to offer suggestions based on the findings of this
study on the formulation of appropriate monetary policy relating to bank
deposit mobilization and management.
1.4 RESEARCH QUESTIONS
Bank deposits or money in its modern form is neither edible
nor material for clothing. In fact, it is neither a structure for shelter nor
an instrument for entertainment. Given this explanation, the questions that
come to minds include the following;
How can bank deposits enhance economic growth and
development?
Are banks and other financial institutions parasites on
society as they are sometimes said by mobilizing and controlling deposits of
customers?
Do bank deposits contribute, in any way, to individual well
being and economic development?
1.5 RESEARCH HYPOTHESIS
This study seeks to test the following hypothesis in the null form.
Ho: The level of interest rate is not positively related to
the volume of bank deposits.
Ho: The rate of inflation is not positively related to the
volume of bank deposits for the period
Ho: The volume of loans and advances is not positively
related to the level of deposits of banks
Ho: The number of bank branches is not positively related to
the volume of bank deposits.
1.6 SIGNIFICANCE OF THE STUDY
According to Teriba (1980), the need for business in West
Africa and Nigeria in particular is to keep part of their surplus funds as deposits in banks had not been duly appreciated in the past.
This has been attributed to a number of reasons, namely people cannot read or
write cheques, many of the citizenry belong to the low income group, the public
needs small amount of money for purchasing goods and services and finally,
absence of banks in rural areas.
In the light of the above, therefore, this study seeks to
educate business in Nigeria and elsewhere on the determinants of bank deposits;
the benefits to both individuals and commercials banks and finally how the
public can be encouraged to save part of their money with the commercial banks
to enable them create credits.
In addition, this study will contribute to the pool of
existing knowledge regarding bank deposit in Nigeria. It is hoped that
knowledge derivable from this study will help to sharpen the financial role of
corporate managers and investment analysis in banks and other financial
institutions.
1.7 SCOPE OF THE
STUDY
The study covers the deposit operations of commercial banks
in Nigeria with particular reference to Union Bank of Nigeria Plc.
It deals more specifically with the factors which determine
bank deposit level as well as the credit creation ability of commercial banks
in Nigeria.
Equally, suggestions will be made to financial and monetary
policies that would enhance commercial banks activities in the economy.
Union Bank of Nigeria Plc was chosen for this study because
of it’s standing as one of the oldest bank in Nigeria which has had a fair
share of the nation’s varied regulatory policies.
1.8 LIMITATION OF
THE STUDY
The limitations of this study arise from difficulties
involved in collecting data from various sources. This is why a cross sectional
study of individual commercial banks was not possible. Cost and willingness of
workers to give adequate information were other limitations. However, the above limitations of the research work did not affect the conclusion to be drawn from
the study.
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Item Type: Project Material | Size: 109 pages | Chapters: 1-5
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