THE EFFECT OF FINANCIAL PERFORMANCE BANKING SECTOR ON ECONOMY GROWTH IN NIGERIA

THE EFFECT OF FINANCIAL PERFORMANCE BANKING SECTOR ON ECONOMY GROWTH IN NIGERIA

Abstract

The study explored the impact of financial performance of the banking sector on Nigeria’s economic growth. Here is a case study of his three selected savings banks in Lagos State. The study used a survey design and targeted sampling techniques to select 450 of his employees from management, upper and lower levels. A well-structured questionnaire that was judged to be valid and reliable was used to collect data from the respondents. Data obtained from administering questionnaires were analyzed using Pearson’s correlation analysis.

Correlation analysis results showed a positive and significant relationship between bank liquidity and economic growth (r=0.772; p<0.05). Also, a positive and significant relationship exists between banking loan to deposit and economic growth (r=.896; p<0.05). Furthermore, a positive and significant relationship exists between return on assets and economic growth (r=0.772; p<0.05).

The study concluded that financial performance of banking sector has a significant effect on economic growth in Nigeria.

Based on the findings of the study, its hereby recommendations that Liquidity ratio, should be employed on both operational and financial by the management of every bank, to ensure that bank’s assets are safeguarded, cash inclusive; Internal audit, Accounting and Finance department should be established in every bank, which should be headed by a qualified accountant so the loan to deposit (LD) can be well monitored and recorded; Banks should arrange for cash, assets and investment in transit insurance cover in order to prevent the risk of loss of any cash in transit so the economy won’t be affected negatively; Return on Asset should be adequately seen as an indicator that should be mostly attractive to banking industry because this is compulsory indicator that can boost the financial performance of banks, and when the banks in Nigeria are doing well, it will sure have good effect on the Nigeria economy; Management of all banks should keep doing everything possible to keep increasing the financial level of the organization.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Financial performance is the subjective measure of how well a firm can use assets from its primary mood of business and generate more revenue. It is also a general measure of a company’s overall financial performance over a period of time.

Economic growth is the increase over time in the inflation-adjusted market value of the goods and services produced by the economy. According to the IMF (2012), it is usually measured as the rate of increase in real gross domestic product (usually per he capita). Growth is usually calculated substantially to eliminate the distorting effects of inflation on the prices of the goods produced. Bork (1999) National income accounts are used to measure economic growth because economic growth is measured as the annual rate of change in gross domestic product and has all the advantages and disadvantages of this measurement. The banking sector comprises a group of various financial services companies. Includes investment banks and brokerage firms, diversified commercial banks, custodians and wealth managers. Douglas and Philip (1983) suggest that savers’ liquidity shares are shocked after choosing between two assets.
A highly profitable, illiquid project product. Syed Muhammad Hamza (2009), Banks provide social to people in their communities. It is usually obtained at a price, for example when meeting a certain amount of savings from a bank. This increases the growth rate of the economy as measured by Gross Domestic Product).

Ekpenyong David B (2011) Economic growth seen from space. Economists studying economic growth rely heavily on gross domestic product estimates.

The Nigerian government recognizes that adequate credit supply to the economy is a key component of the growth process and has introduced several reforms to boost growth in the banking sector, thereby boosting economic growth. and reduce the country’s poverty and unemployment rates. The important point here is that the fact that these various reform efforts have resulted in an increase in the number of financial institutions and financial instruments is not in itself evidence of financial growth accompanying growth in the real sector ( Soludo, 2007).

Many people in Nigeria were trapped in poverty due to lack of access to income opportunities and skills-based training opportunities. Unemployment is high and many people are forced to emigrate to other countries. We will not bring change unless the poor are mainstreamed for economic and social change (Akhavein, 1997). The International Monetary Fund and the Central Bank of Nigeria agree that the Nigerian economy is in recession. This leads us to the causes and possible solutions to the recession in Nigeria.One of the most common causes of recession is high inflation, a general increase in the prices of goods and services. Another cause of recession is poor planning related to fiscal lag and exchange rate policy. Recessions are measured in part by gross domestic product and other economic performance indicators. Virtually every cause of recession has some solution.
We need to invest in the energy sector, avoid double taxation, and invest domestic and foreign loans in more infrastructure (Emmanuel, 2017).

1.3 Purpose of the survey

The primary objective of this study is to determine the impact of financial performance of the banking sector on Nigeria’s economic growth.

Specific goals are:

1) Determine the impact of liquidity on economic growth.

2) to determine the impact of deposit lending on economic growth;

3) Determining the impact of return on assets on economic growth

1.4 Research question

1) How is economic growth impacting bank liquidity in Nigeria? 2) How is economic growth impacting Nigerian bank deposits and lending?

3) How is economic growth impacting Nigerian banks’ returns on assets?

1.5 Hypotheses

In line with our research objectives, the hypothesis was formulated as follows.

1) Ho:
Economic growth does not significantly affect the liquidity of Nigerian banks.

H1:
Economic growth has a major impact on Nigerian bank liquidity

2) Ho:
Economic growth has not had a significant impact on Nigerian bank deposit lending.

H1:
Economic growth has had a significant impact on Nigerian bank deposit lending. 3) H:
Economic growth has had no significant impact on Nigerian banks’ return on assets

H1:
Economic growth has a significant impact on Nigerian banks’ return on assets

1.6 Operationalization of variables

The focus of this study is on the impact of the banking sector’s financial performance on Nigeria’s economic growth. Therefore, two variables of her are identified in this study, the dependent variable and the independent variable. The dependent variable is economic growth and the independent variable is the financial performance of the banking sector, measured using the liquidity ratio (LR).

1.8 Scope of investigation

The scope of this study focuses on the impact of financial performance of the banking sector on Nigeria’s economic growth. The study spans his five years (2012-2016) and uses primary data from questionnaire administration.

1.9 Operational definitions of terms

deposit:
– Amounts credited to a bank or housing association account. Bank deposits consist of money deposited with institutions for safekeeping.

Account holders have the right to withdraw deposited funds as specified in the terms of the account agreement. Draw again:
– Redraw is a term that describes the ability to withdraw money (from additional payments) when needed from a variable rate mortgage. A redraw is the difference between the current balance and what it would have been without additional redemptions.

Credit institution:
– A type of loan granted in the context of business or corporate finance, including revolving credit, term loans, committed letters of credit from faculty and staff, and most personal credit accounts.

Loan rate:
– Amount charged by banks for money lent.

Interest spread:
– This can be calculated by subtracting the loan interest rate from the deposit interest rate. Margin is the interest charged by a bank on loans to its main customers minus the interest paid by commercial or similar banks on demand, term deposits or savings deposits.

Liquidity ratio:
A company’s ability to repay all cash to short-term creditors. This is the result of dividing total cash by short-term borrowings. It shows how often short-term debt is covered by cash. A value greater than 1.00 means full coverage. Return on Investment (ROA):
The percentage of a company’s assets that generate income.

Human Development Index (HDI):
A composite statistic of life expectancy, education and per capita income indicators, used to classify countries into his four levels of human development.