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The study focused on the contributions of commercial banks to economic growth of Nigeria. The specific objectives of the study include: to examined the effect of commercial bank loans on the gross domestic product, to ascertain relationship between commercial bank and total revenue in Nigeria, to determine the correlation between commercial bank and total monetary asset of Nigeria, and to explore the commercial bank on the net national income of Nigeria. Data for the study were sourced through CBN Annual report and journal articles which related to the subjects matter. The data collected were analyzed using SPSS.  The research findings are commercial bank loans had a positive and significant effect on gross domestic product, commercial bank loan had a significant effect on total revenue in Nigeria, commercial bank loan has a significant effect on net national income in Nigeria, commercial bank loan had a significant influence on total monetary asset in Nigeria. Based on the findings the researcher recommends that Commercial banks should re-examine and redefine their objectives, policies and operational strategies, seek new market niches in non-traditional activities and fight for larger market shares.




1.1Background of the study

Nigeria is the most populous African country with a population of about 140 million people. This represents about 20% of the population of the entire African continent. The country is also one of the world's top eight producers of crude oil in the world. The recent Article IV Report (2008) on the country posited that the economy is likely to be part of the emerging market in the world. However, despite the above submission, the country is amongst the poorest economies. The position of this country makes it somehow important to examine the contribution of the financial sector to the spate of growth within the economy. In essence, can we say that the financial institutions are well positioned to assist the economy in promoting growth thereby improving the well being of the populace? (Oluitan, 2010).

The importance of financial institutions in promoting growth within the economy has been widely discussed in the literature. Early economists such as Schumpeter in 1911 identified the importance of banks in facilitating technological innovation through their intermediary role. He believed that efficient allocation of savings through identification and funding of entrepreneurs with the best chances of successfully implementing innovative products and production processes are tools to achieve this objective. Several scholars thereafter (Fry, 1988; King & Levine, 1993; McKinnon, 1973; Shaw, 1973) have supported the above postulation about the significance of banks to the growth of the economy.

There are a number of reasons why the financial sector and its activities may influence the rate of economic growth. Financial intermediaries channel resources to the most profitable sectors of any economy. According to Nzotta (2004), financial institutions channel resources from surplus economic units to deficit units for investment purposes. This consists of the provision of loans and advances to the private and public sectors for the purpose and for the growth of domestic output and promotion of the export trade, agricultural production and provision of infrastructure. Similarly, Jhingan (2004) argues that banks in developing economies play an effective role in their economic development. He says there is acute shortage of capital. People lack the initiative and enterprise. Means of transport are undeveloped. Industry depressed. Financial institutions help in overcoming these obstacles and promote economic development. Financial intermediaries monitor managers and exert corporate control ameliorating moral hazard risk. In particular, by providing liquidity, financial institutions permit risk averse savers to hold deposits rather in liquid but unproductive assets. This mobilization of savings allows increase in the amount of resources available to entrepreneurs.

The role of financial institutions in economic growth has attracted the attention of researchers and policymakers in the last century. There is a large body of literature, both empirical and theoretical, which have examined this issue. The findings of these studies are not without controversy; while some studies find that financial institutions development has been instrumental in accelerating economic growth, others have suggested that it has not been very significant. According to Beck et al (2000), Bekaert  (2005), a long list of scholars posit, a causal association between finance and economic growth. La Porta et al (2000) argues that well developed capital markets- especially those imbued with rights that protect investors — promote the efficient allocation of capital to projects with high rates of return, in turn stimulating savings, investments and economic growth. Evidence from both single country (Guiso, Sapienza and Zingales (2004) and cross-country (Levine, 2006; Demirguc — Kurt and Levine (2001) studies suggest that economies with more developed commercial banks begin to grow earlier, attain higher growth rates, and achieve higher levels of per capita income than economies with less developed commercial banks.

The Levine (2005) and Beck (2009) argue that the positive effect of financial development over economic growth can be explained by five mechanisms, whose operations reduce the negative impact of information asymmetries among economic agents and the transaction costs involved in their activities. According to them, financial system (1) provides means of payments that facilitates a greater number of transactions', (2) concentrates the savings of a large number of investors, (3) makes possible the allocation of resources to their most productive economic use, through the effective evaluation and monitoring of investment projects, (4) improves corporate governance, and (5) contributes to risk management.

The financial sector of any economy in the world plays a vital role in the development and growth of the economy. The development of this sector determines how it will be able to effectively and efficiently discharge its major role of mobilizing fund from the surplus sector to the deficit sector of the economy. This sector has helped in facilitating the business transactions and economic development (Aderibigbe 2004). A well developed financial system performs several critical functions to enhance the efficiency of intermediation by reducing information, transaction and monitoring costs. If a financial system is well developed, it will enhance investment by identifying and funding good business opportunities, mobilizes savings, enables the trading, hedging and diversification of risk and facilitates the exchange of goods and services. All these result in a more efficient allocation of resources, rapid accumulation of physical and human capital, and faster technological progress, which in turn results in economic growth.

Development in the real sector, as noted by Ajayi (1995), influences the speed of growth of the financial sector directly, while the growth of the finance, money and financial institutions influence the real economy. The economic growth is a gradual and steady change in the long-run which comes about by a general increase in the rate of savings and population (Jhingan 2005). It has also been described as a positive change in the level of production of goods and services by a country over a certain period of time. Economic growth is measured by the increase in the amount of goods and services produced in a country. An economy is said to be growing when it increases its productive capacity which later yield more in production of more goods and services (Jhingan 2003). Economic growth is usually brought about by technological innovation and positive external forces. It is the yardstick for raising the standard of living of the people. It also implies reduction of inequalities of income distribution. Oluyemi (1995) regards the financial sector of any economy as an engine of growth that could greatly assist in the promotion of rapid economic transformation. It can be concluded that no economy can ever develop without an appreciable growth in the financial sector. An efficient financial system is essential for building a sustained economic growth and an open vibrant economic system. Countries with well developed financial institutions tend to grow faster; especially the size of the banking system and the liquidity of the stock markets tend to have strong positive impact on economic growth (Beck and Levine, 2002 in Nnanna, 2004).

1.2  Statement of the problem

The Nigerian financial sector, like those of many other less developed countries, was highly regulated leading to financial disintermediation which retarded the growth of the economy. The link between the financial sector and the growth of the economy has been weak. The real sector of the economy, most especially the high priority sectors which are also said to be economic growth drivers are not effectively and efficiently serviced by the financial sector. The banks are declaring billions of profit but yet the real sector continues to weak thereby reducing the productivity level of the economy. Most of the operators in the productive sector are folding up due to the inability to get loan from the financial institutions or the cost of borrowing was too outrageous. The Nigerian banks have concentrated on short term lending as against the long term investment which should have formed the bedrock of a virile economic transformation. Since the adoption of the Structural Adjustment Programme (SAP) in 1986, in an attempt to quicken the recovery of the economy from its deteriorating conditions, a great deal of interest has been shown in the activities and development in the financial sector. This is so because the restructuring of this sector was a central component of the SAP reform.

There have been several studies on financial sector development and economic growth. However, most of them consider one component of the financial sector in relation to economic growth. Many studies have been conducted on capital market and economic growth, banking credit and economic growth, like wise foreign direct investment and economic growth. The use of one component of the financial sector like capital market or Foreign Direct Investment as a representative of the entire financial sector is inadequate and in appropriate. For adequate analysis to be made for informed judgment to be reached there is the need for the collaboration of at least three components of the financial sector. To fill this gap therefore, this study considered three components of the financial sector comprising banking credits, capital market and foreign direct investment to the financial sector together in relation to economic growth.

1.3 Objective of the study

The aim of this research work is to assess the contributions of commercial banks to economic growth of Nigeria with particular reference to Key stone bank from 2011-2015. The specific objective of this research work includes the following;

1.  To examine the effect of commercial bank loans on the gross domestic product of Nigeria.

2.  To evaluate the relationship between commercial bank and Nigerian total revenue.

3.  To ascertain the correlation between commercial bank and total monetary asset of Nigeria.

4.  To evaluate the effect of commercial bank on the net national income of Nigeria.

1.4 Research Questions

Based on the above objectives the researcher asked the following questions;

1.  To what extent does commercial bank affect the gross domestic product of Nigeria?

2.  What are the relationships between commercial bank loan and Nigerian total revenue?

3.  Is there any correlation between commercial bank loan and total monetary asset of Nigeria?

4.  What are the effects of commercial bank loan on the net national income of Nigeria?

1.5 Formulation of Hypotheses

The researcher developed the following research hypotheses to guide this research work;

Ho: Commercial bank loan does not have any significant effect on the gross domestic product of Nigeria.

H1: Commercial bank loan has significant effect on the gross domestic product of Nigeria.

Ho: There is no relationship between commercial bank loan and Nigerian total revenue.

H1: There is significant relationship between commercial bank loan and Nigerian total revenue.

Ho: There is no correlation between commercial bank loan and total monetary asset of Nigeria.

H1: There is correlation between commercial bank loan and total monetary asset of Nigeria.

Ho: Commercial bank loan does not have any significant effect on the net national income of Nigeria.

H1: Commercial bank loan has significant effect on the net national income of Nigeria.

1.6   Significance Of The Study Success

This research work will be of immense help to:

The Researcher: it will help the researcher to know more on the contributions of commercial banks to economic growth of Nigeria.

Stake Holders: It will also be of great importance to stake holders in Nigerian financial institutions as it will enrich their knowledge on the various contributions of commercials banks to Nigerian Economy.

Commercial Banks: This will equally be of help to commercial banks as it will serve as an eye opener on their various contributions to the development of Nigerian economy.

The Country: This study will be of great importance to the country Nigeria as it will help the policy makers to prorogate laws that will enhance the contributions of commercial banks in Nigeria. 

1.7   Scope Of The Study

This research focuses on the contributions of commercial banks to economic growth of Nigeria with particular reference to Key stone bank from 2011-2015.


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