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The Impact of Deposit Money Bank Credit on Manufacturing Sector in Nigeria From 1990-2017 Fiscal Year

 Abstract

The study investigated the impact of Deposit Money Bank Credit on Manufacturing Sector in Nigeria from 1990-2017 fiscal year. It focused on the impact variables such as Bank Loans and Advances (BKLA), Inflation Rate (INF), and Interest Rate (INTR) had on Manufacturing Sector Output (MANQ) in Nigeria. The study employed secondary data sourced from the Central Bank of Nigeria (CBN) statistical bulletin 2017. To avoid spurious regression, Unit Root and Cointegration tests were carried out. The Ordinary Least Square (OLS) technique was used to determine the relationship amongst the variables. Study affirmed that BKLA have a positive and significant impact on MANQ, while INF and INTR proved to be negative and significant on MANQ. However, BKLA and Interest rate were  in line with the apriori expectation, while INF was not in line with the apriori expectation. The study concluded on the note that Bank Loans and Advances (BKLA) has a positive impact on Manufacturing Sector Output in Nigeria. The researcher recommended amongst the following that Effort should be made towards encouraging the local manufacturers through tax holidays etc., deepen the financial system of the country, and maintain a low and/stable inflation rate.

CHAPTER ONE

INTRODUCTION

Background To The Study

Deposit money banks are resident depository corporations which have any liabilities in the form of deposits, payable on demand, transferable by cheque or otherwise useable for making payments. Bank credits refers to “Loan”. It is the total borrowing capacity the deposit money banks provide to borrowers. Deposit money banks create credits by releasing funds of savers who do not desire to use their money, to customers with brilliant ideas who can create additional wealth by putting the credits into productive uses. (Adebayo, 2017). Succinctly put, deposit money banks play an intermediary role between the surplus savers and the deficit spenders in the economy through the creation of channels for credit mobilization and allocation, that creates investment which in turn foster economic activities, growth and development.

The role of bank credit in the economic growth and development of a country cannot be overemphasized. Other sectors of the economy are often sustained primarily by the bank credits as no sector is an island on its own. For instance, farmers obtain credits to purchase machinery and equipment, while the government obtains credit to meet up with either its recurrent and/or capital expenditure. All these activities bring about economic growth and development.

Manufacturing sectors refers to to those industries that are involved in the manufacturing and processing of items and indulge in either creation of commodities or in value addition (Adebayo 2010). The manufacturing sector is one of the key variables in every developing economy as it contributes/accounts for a significant proportion of the total economic activities. The Overseas Development Institute, ODI, in 2016, recorded that the manufacturing sector is responsible for about 10% of the total Gross Domestic Product (GDP) annually.

The rationale behind bank credits is the fact that other sectors of the economy, particularly, the manufacturing sub-sector in the developing countries, like Nigeria, often lack sufficient financial resources to carry on its businesses and this therefore calls for the need for bank credit. Due to the importance of both the deposit money banks and the manufacturing sun-sector who obtain the credits and gear them towards productive process, the monetary authorities in Nigeria has implemented several banking reforms to enhance credit accessibility so as to ensure financial stability and subsequently, economic growth (Franklin, 2017). The Nigerian government has continued to articulate policy measures and programmes to achieve industrial growth incentive and adequate finance. (Orji, 2012). Irrespective of all these efforts by the Nigerian government, the manufacturing sector has continued to decline, thereby causing some economic and social challenges.

Statement Of The Problem

In spite of the continued policy strategy by the Nigerian government to boost Gross Domestic Product (GDP) through the productive activities of the manufacturing sector by increasing the availability of credit facilities to the manufactures, not much of a significant increase has been recorded, as the manufacturing sector has remained stagnated at the 10% of the   overall GDP as at 2016 (Overall Development Institute, ODI, 2017). However, the loans and advances to the manufacturing sector has been on the increase since 1990 when it got to 10.9 billion and 206.9 billion in 2000. It further increased to 1053.2 billion in 2010, 1179.7 in 2012. In spite of the credits given to the manufacturing sector, the output of the sector has remained on the decline and in some cases, stagnated.

Table I:

YEAR MANUFACTURING SECTOR PERFORMANCE (Millions) BANK LOANS AND ADVANCES (Billions)
1990 1,606,118,000 10.9
1991 1,611,255,000 15.4
1992 1,424,518,000 23.1
1993 860,643,300 34.8
1994 1,203,093,000 58.1
1995 1,496,441,000 72.2
1996 1,661,213,000 82.8
1997 1,776,028,000 96.7
1998 1,607,914,000 115.8
1999 1,634,716,000 141.3
2000 1,652,325,000 206.9
2001 1,789,778,000 233.5
2002 1,964,082,000 294.3
2003 2,226,699,000 332.1
2004 2,628,652,000 352.0
2005 3,143,849,000 445.8
2006 3,719,532,000 487.6
2007 4,140,298,000 932.8
2008 4,939,627,000 993.5
2009 4,112,168,000 987.6
2010 23,810,310,000 1,053.2
2011 29,258,340,000 1,068.3
2012 35,454,880,000 1,179.7
2013 45,980,950,000 18.2
2014 54,771,490,000 264.0
2015 45,357,020,000 76.1
2016 35,122,630,000 60.3

Source: Central Bank Of Nigeria Statistical Bulletin, 2017.

Given the above table, it is quite obvious that bank credits to the manufacturing sector have been on the increase, but the manufacturing sector performance (output) has been fluctuating, with no significant   growth.

Due to the fact that the manufacturing sector is one of the key variables in every developing country which fosters economic growth and development, the continues fluctuations and fall in the output and growth rate of the sector regardless of rising credit availability has caused grave concerns amongst the academics and policy makers. According to the data published by the CBN statistical bulletin of 2017, there has been a steady decline in the growth rate of the manufacturing sector since 1982, when it grew to 7.8%. It came down to 3.7% in 2003 before rising to 4% in 2013 and 2014. It however decreased to -2.9% in the third quarter of 2017, before rising to 0.1% in the fourth of 2017.

This fall has brought with it the laying off of workers and its attendant unemployment, thereby bringing about a fall in total economic output and subsequently, the standard of living.

Objectives Of The Study

The broad objective of the study is to examine the impact of deposit money banks credit on manufacturing sector performance in Nigeria. Specifically, the objectives include;

  1. To ascertain the impact of deposit money banks loans and advances on manufacturing sector output in Nigeria.
  2. To examine the relationship between interest rate and manufacturing sector output in Nigeria.
  3. To determine the impact of inflation rate on manufacturing sector output in Nigeria.

Research Questions

The study intends to provide answers to the following questions;

  1. What is the relationship between deposit money banks loans and advances and manufacturing sector output?
  2. How does interest rate affect manufacturing sector output?
  3. Does there exist any impact of inflation on manufacturing sector output?

Research Hypothesis

Ho1:              Deposit money banks loans and advances does not have any significant impact on manufacturing sector output.

Ho2:            Interest rate does not have any significant relationship with manufacturing sector output.

Ho3:            Inflation rate does not have any significant relationship with manufacturing sector performance in Nigeria.

Significance of the Study

This study will be relevant to most people and organizations due to many reasons.

  1. This study will be relevant to deposit money banks because it will give them an insight on the amount of credit to channel to the manufacturing sector.
  2. It will also be of great importance to the manufacturers because, it will help them know how to obtain bank credits to improve manufacturing activities.
  • The study will also benefit the government because it will enable them know the necessary policies that will enhance the manufacturing sector.
  1. It will be very useful to other researchers who may want to carry out a research on this concern.

Scope Of the Study

The study covers a period of 27 (twenty seven) years, between 1990 and 2017. Annual time series data from the CBN statistical  bulletin of 2017 will be employed in the analysis. The research will focus primarily on all forms of credit issued out to the manufacturing sector through the deposit money banks during the period of study. The study will be limited to the Nigerian Deposit money banks and the manufacturing sector.

Limitations of the Study

The greatest challenge encountered by the researcher in the conduct of this study is the inaccessibility of the researcher to relevant materials that would have added to the smooth going of this work. This is due to the bureaucratic nature of the school library. However, the researcher had to download materials and journals online, in other to accomplish this work.


Pages:  76

Category: Project

Format:  Word & PDF

Chapters: 1-5

Material contains Table of Content, Abstract and References

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Written by Divine Portal

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