THE IMPACT OF THE CONTRIBUTORY PENSION SCHEME ON EMPLOYEE RETIREMENT BENEFITS OF QUOTED FIRMS IN NIGERIA

THE IMPACT OF INFORMATION TECHNOLOGY ON THE
GROWTH AND DEVELOPMENT OF BANKING INDUSTRY IN
NIGERIA. A CASE STUDY OF UNITED BAN FOR AFRICA
PLC (BA), FIRST BANK OF NIGERIA PLC (FBN) AND ZENITH
BANK PLC

ABSTRACT
Some of the tropical issues posing serious problems in both the private and sector are advances in technology. The sector that has been most radically affected is the financial sector. This information technology has become a critically business resource because its absence could result in poor decision and ultimately business failure. In this regard, the researcher intends to find out the impact of information technology on the growth and development of banking industry in Nigeria. The work paid attention to the concept of information technology, history of information technology, evolution of Nigerian banking industry, banking operations in Nigeria, application of information technology in Nigerian banking industry, the role of information technology in Nigerian banking industry, and the problems and challenges of information technology in Nigerian banking industry. The study examined the performance of the big three (3) commercial banks in Nigeria that adopts information technology in their banking operations. The researcher concluded that the introduction of information technology in Nigerian banking industry has immensely developed our banking sector.

TABLE OF CONTENTS
Title Page … … … … … … … … … … i
Dedication… … … … … … … … … … ii
Acknowledgement… … … … … … … … … iii
Abstract… … … … … … … … … … … iv
Table of Contents… … … … … … … … … v
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study… … … … … … … 1
1.2 Statement of the problem … … … … … … 4
1.3 Research Questions… … … … … … … … 5
1.4 Objectives of the Study… … … … … … … 6
1.5 Scope of the study… … … … … … … … 7
1.6 Research Hypothesis… … … … … … … 7
1.7 Significance of the study… … … … … … … 9
References
CHAPTER TWO: LITERATURE REVIEW
2.1 Meaning of Information Technology … … … … 11
2.2 The History of Information Technology … … … 12
2.3 The Evolution of Nigerian Banking Industry … … 14
2.4 Banking in Nigeria .. .. .. … … … … … … … 19
2.5 Overview of the Nigerian Banking system … … … 21
2.6 The application of Information Technology in the
Nigerian Banking Industry .. … … … … … 26
2.7 The Role of Information Technology in the Nigerian
Banking Industry .. .. .. .. … … … … … … 40
2.8 The Problems and Challenges of Information
Technology in the Nigerian Banking Industry … … 43
2.9 A Profile of First Bank of Nigeria Plc, United Bank for
Africa Plc and Zenith Bank Plc .. … … … … … 42
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design .. .. .. … … … … … … … 55
3.2 Sample Size .. .. .. .. … … … … … … … 55
3.3 Sampling Techniques .. .. .. … … … … … … 56
3.4 Nature and Sources of Data .. … … … … … … 56
3.5 Techniques of Analysis .. ….. … … … …. … 57
3.6 Limitations and Problems of the Study … … … 58
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1 Presentation and Interpretation of Data .. .. .. … … 59
4.3 Test of Hypothesis .. .. .. .. .. .. .. … … …. …. … 78

CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION
5.1 Summary of Findings .. .. .. .. .. .. .. … … … … … 85
5.2 Recommendations .. .. .. .. .. .. .. … … … … … 86
5.3 Conclusions .. .. .. .. .. .. .. .. …. … … … … … 89
APPENDIX .. .. .. .. .. .. … … … … … … … 92
Bibliography .. .. .. .. .. .. .. .. 97

Download Full Material-N5000

IMPACT OF FOREIGN PORTFOLIO INVESTMENT ON STOCK MARKET RETURN IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Nigeria in the last few years had clamored for foreign portfolio investment in the country. This is believed to be a facilitator of economic growth and development, which leads to industrialization of the economy in the long run (Adeleke, Olowe & Fasesin, 2014). Foreign portfolio investment means the purchase of shares in a foreign country where the investing party does not seek control over the investment. A portfolio investment typically takes the form of the purchase of equity (preference share) or government debt in a foreign stock market, or loans made to a foreign company. Obviously the purchase of bonds issued by a company, which gives no voting rights, or of government debt, and making loans to foreign company do not give control (Bosodersten and Reed, 1996).

Portfolio investment is a recent phenomenon in Nigeria. Up to the mid 1980’s, Nigeria did not record any figure on portfolio investment (inflow or outflow) in her balance of payment account. The nil return on the inflow column of the account is attributable to the absence of foreign portfolio investors in the Nigerian economy. This is largely because of the non-internalization of the country’s money and capital markets as well as the non-disclosure of information on the portfolio investments in foreign capital/money markets (Obadan, 2004). Following a careful review of the consequences of the Exchange Control Act of 1962 on the economy, after some thirty three years of its operation, Nigerian authorities came to the conclusion that the Act had not brought the economy any substantial benefits. The Act was judged inimical to a market driven economy, new policy government had pursued since 1986, with the deregulation of the economy. While equity investment trickled into Nigeria as a result of the Exchange Control Act of 1962, Portfolio Investments dried up, because portfolio investments required an investment climate, which guarantees speedy “free entry” and “free exit” of investment funds into and out of a country in a flash.

The investment climate in Nigeria engineered by the Exchange Control Act of 1962 did not guarantee the speedy mobility of funds across international borders. It took the authorities more than three decades to realize that protection of the economy in a world striving to dismantle economic frontiers had not paid off, and that the capital market being a major player in the mobilization of funds for investment has to be liberalized and modernized to enable it capture enough resources for the economy from within and from outside. The Exchange Control Act of 1962 was identified as a major constraint on the growth of the Nigerian capital market. Accordingly the Act was blown away with gale force in 1995, by the strong wind of deregulation, which swept across the Nigerian Macro-economic policy arena, from the beginning of the last quarter of 1986 (Onoh, 2002).

The deregulation of securities pricing by SEC in 1993; the abolition in 1995 of both the Exchange Control Act of 1962 and the Nigerian Enterprises Promotion Decree (NEPD) of 1989, demanded the reorganization of the Nigerian Stock Exchange to make it more dynamic and mobile in the provision of adequate liquidity of investment bring up the operation of the exchange to international standard and attract foreign portfolio investors. Accordingly, Federal Government of Nigeria in March 1996 set up a panel on the Nigerian Stock Exchange and , the panel’s term of reference include the reorganization of the Nigeria Stock Exchange to make it more dynamic, to recommend ways for modernizing the exchange to bring it up to international standard and to make other recommendations, which in the view of the panel, would strengthen the operation of the exchange, and position it to deal with the domestic and international capital market challenges to the coming millennium (Onoh, 2002).

 

Nigeria’s stock market index is the Nigerian stock exchange’s All-share Index (NSE-ASI, or simply ASI), and currently provides a composite picture of the financial health of 233 listed equities. Starting with an index value of 100 in 1984, with increased listings and financial activity, the index value saw changes from 12,137; 20,129; 23,845; 24,086; to 33,358 at the end of the years 2002-2006 respectively; with respective end-of-year market capitalizations of N0.748 trillion, N1.32 trillion, N1.93 trillion, N2.90 trillion and N5.12 trillion. The ASI attained a value of 57,990 (and N10.180 trillion capitalization) at the end of year 2007, started the year 2008 at 58,580 (with a market capitalization of N10.284 trillion), and then went on to achieve its highest value ever of 66,371 on March 5, 2008 with a market capitalization of about N12.640 trillion.

However, ever since that high, the ASI has severally declined, exhibiting a secular bear posture since July 17, 2008 when, at ASI of 52,910, the Index fell below 20% of its all time high. It fell further, crossing below the 50,000 mark on August 8, 2008 and closing on October 22 at 42,207 (a 36.4% loss from the high within just seven months, and a year to date decline of 27.9%) (Mobolaji, 2008). Meanwhile CBN annual report on Foreign portfolio investment from 2000-2006 are $51,0791.1; $26,317.1; $24,789.2; $23,555.5; $23,541.0; $375, $858.9; $117,218.9 US dollars ranging from $1-$1000 respectively, imply fluctuation on Foreign portfolio investment in Nigeria (CBN Annual Report, 2006). The figures and dates above suggest an overlap of distress periods. Bearing in mind that there is virtually no cross-ownership of banks (investment or otherwise) between Nigeria and foreign countries, and there is hardly any vibrant domestic mortgage market for there to be sub-prime problems as found particularly in the UK and the USA. It is difficult to pronounce any direct impact. Nevertheless a factor on which this situation may have direct or indirect effect is Foreign portfolio investment withdrawals and withholding in order to service financial problems at home, as well as prospects of reduced foreign direct investment (FDI), are bound to affect investors’ confidence and the economic health of Nigeria. (Mobolaji, 2008).

 

There has also been competition among emerging markets to attract foreign portfolio investments, which has led to a situation in which in order to sustain inflows of portfolio investments, it has become increasingly important for developing countries to ensure attractive returns for portfolio investors. Often this means offering increasing operational flexibility (Parthapratim, 2006).

 

On the other hand, several related studies on Nigerian emerging market had neglected the fact that foreign portfolio investment may exert positive influence on stock market returns. Among these papers are the case of Temitope (2002), Tokunbo (2004), Rose and Sara (1998), examined the trend towards promoting stock market and economic growth but fail to consider the fact that foreign portfolio investment according to Adeleke (2004) is believed to facilitate economic growth and development which leads to industrialization of the economy. Ologunde et al (2006) showed that interest rate exert positive influence on stock market returns, this is in line with the empirical result of Temitope (2002). Robert (2008) and Shehu (2009) investigated the relationship that exists between stock market returns and the exchange rate. Meanwhile, Adabag (2005) had opined that foreign investors are blamed for financial instability through sudden flows in emerging markets. To this end, it needs to be investigated whether the inflow and outflow of foreign portfolio investments on the stock market is significant enough to lead to an increase or fall in stock market returns.

 

1.2 STATEMENT OF THE PROBLEM

Trade flow involves short-term positions in financial assets of international market and is similar to investing in domestic securities.FPI allows investors to take part in the profitability of firms operating abroad without having to directing manage their operations. This is a similar concept to trading domestically. Most investors do not have the capital or expertise required to personally run the firm that they invest in.  One of such capital flows is the foreign portfolio investment. FPI has been noted to flow mostly to developed nations from developing nations. However, there has been dramatic increase in the magnitude of international flows of portfolio investment from developed countries to emerging markets especially before the global economic crisis. Even though, FPI can be unproductive to developing economies, the massive flow of international capital can play a useful role in economic development by adding to the savings of developing countries in order to increase their pace of investment.

 

Over the past years, Nigerian economy has been subjected to series of social, political and economic policies and reforms. Before a decade after independence, the country was basically agrarian and the various regional governments then largely achieved food security. In 1961, the establishment of the Nigerian Stock Exchange (formally called Lagos Stock Exchange) promoted private capital investment for growth and development in order to develop the capital market. Past and present scholars believed that investment that promotes economic growth and development requires long term funding, far longer than the duration for which most savers are willing to commit their funds. In the capital market, both local and foreign investors provide long-term funds in exchange for long-term financial assets offered by fund users.

 

Ologunde, Elumilade & Asaolu (2006) said that the market embrace both the new issues (primary) market and secondary market. Generally, capital markets are the heart beat of every economy since their ability to respond instantaneously to fundamental problems change in all countries. Also, it encourages savings and real investment in any healthy economic environment. Aggregate savings are channeled into real investment which increases capital stock and therefore economic growth of the country. These attributes of capital market make it possible for the discerning minds to feed the impulse of such an economy. Nigeria Stock Exchange is not an exemption as it is expected to be influenced by external shocks, which are outside the realm of capital market. The external shocks are the macroeconomic indicators that are expected to cause variation in the stock prices movement. Maku and Atanda (2009) argued that these changes are often reflected by the magnitude and movement in stock prices, market index and liquidity of the market. Hence, it is line with this that the study seek to investigate the impact of foreign portfolio investment on stock market return in Nigeria

 

1.3 OBJECTIVES OF THE STUDY

The broad objective of this study is to investigate the impact of foreign portfolio investment on stock market returns. Specifically, the study shall:

1. Examine the impact of foreign portfolio investment on stock market returns in Nigeria.
2. Examine the direction of causality between foreign portfolio investment and stock market returns.
3. Examine the impact of inflation on stock market returns in Nigeria.

 

1.4 RESEARCH QUESTIONS

In line with the above objectives, the research questions shall be:

1. What is the impact of foreign portfolio investment on stock market returns in Nigeria?
2. What is the direction of causality between foreign portfolio investment and stock market returns?
3. How does inflation affect stock market returns in Nigeria?

 

1.5 RESEARCH HYPOTHESES

Following the objectives and  research questions of the study, the research hypotheses are stated as:

1. Foreign portfolio investment has no positive and significant impact on stock market returns in Nigeria.
2. There is no causality between foreign portfolio investment and stock market returns.
3. Inflation has no positive significant impact on stock market returns in Nigeria.

 

 

1.6 SCOPE OF THE STUDY

This study covers a period of twenty years, ranging from 1990-2009. The data are sourced from Central Bank of Nigeria (CBN). It is limited to Market capitalization, Volume of shares traded, Number of listed dealers and all shares Index amongst others. Several related studies on Nigerian emerging market had neglected the fact that foreign portfolio investment may exert positive influence on stock market returns, and also examine the trend towards promoting stock market and economic growth. To consider the fact that foreign portfolio investment is believed to facilitate economic growth and development which leads to industrialization of the economy. This research work is an attempt to re-examine the issue as it concerns the growth of the Nigerian capital market via foreign portfolio investment. It needs to be investigated whether the inflow and outflow of foreign portfolio investments on the stock market is significant enough to lead to an increase or fall in stock market returns.

 

1.7 SIGNIFICANCE OF THE STUDY

The study will be beneficial to the following:

1. Prospective investors: This work will provide the stock of knowledge needed by prospective investors to control the extraneous variables, which must be considered prior to investment, under the operating conditions prevalent in the Nigeria economy.
2. Investment Decision-makers and Financial Analysts: To investment decision-makers and financial analysts alike, this work will set new track knowledge of responsibility, challenging them to the strategies simple enough and available in carrying out investment decisions. It will provide such understanding needed to establish a fulfilled investment goals by creating a portfolio containing a variety of investment vehicles that will produce an acceptable return for a level of risk at comparative advantage.

• Students, professionals, corporate practitioners, public and Board of companies: The work is recommended to students seeking familiarity with the market, entry level professionals, corporate practitioners as a reference and training material, for other studies channeled towards portfolio investment decision, and for the general public as a guide to the market and for members of Board of companies, who are not capital market professionals as a defense against jargons thrown at them by their finance Directors.

 

1.8 OPERATIONAL DEFINITION OF TERMS

CAPITAL MARKET: the part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments.

ECONOMIC GROWTH: the increase in the market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

INFLATION: a general increase in prices and fall in the purchasing value of money.

INTEREST RATE: the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

ALL SHARE INDEX: originally known as the FTSE Actuaries All Share Index is a capitalization-weighted index, comprising around 1000 of more than 2,000 companies traded on the Nigerian Stock Exchange.

MARKET CAPITALIZATION: the total value of the issued shares of a publicly traded company; it is equal to the share price times the number of shares outstanding.

EQUITY: the value of the shares issued by a company.

NIGERIAN STOCK EXCHANGE (NSE): The NSE is regulated by the Securities and Exchange Commission, which has the mandate of Surveillance over the exchange to forestall breaches of market rules and to deter and detect unfair manipulations and trading practices

Download Full Material-N5000

THE FINANCIAL SYSTEM AND ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

A financial system is a set of rules, regulations and the aggregation of financial arrangement, institutions and agents that interact with each other and the rest of the world to foster economic growth and development of a nation (Nzotta and Okereke, 2009). According to Nwude (2004), financial systems consist of financial markets, financial intermediaries, financial instruments, rules, conventions and norms that facilitate and regulate the flow of funds through the macro-economy. A good financial system, according to Rousseau and Sylla (2001), is one that has these five key components: (i) Sound public finances and public debt management, (ii) Stable monetary arrangement, (iii) A variety of banks some with domestic and others with international orientations and perhaps some with both orientation, (iv) Well functioning securities market, and (v) A central bank to stabilize domestic finances and manage international financial relations.

Economists argue about the relationship between the financial system and economic growth. Economic growth can be defined as the expansion of the economy through a simple widening process. It involves enhancing the productive capacity of an economy by employing available resources to reduce risks, remove impediments which otherwise could lower costs and hinder investment (Sanusi, 2011). Economic growth also refers to a sustained increase in the output of an economy (Hogendorn, 1992).

The role of the financial system in promoting economic growth generated so much controversy among scholars and practitioners. Economists hold four different views on the relationship between finance and growth: supply leading view, demand following view, bi-directional relationship and no relationship between finance and growth (Apergis, et. al., 2007). The supply leading view asserts that finance impact positively on economic growth (King and Levine, 1993; Neusser and Kugler, 1998; Levine, et. al., 2000). This theoretical stand-point is traced to the work of Schumpeter (1911), cited in Arestis and Dematriades, (1993) who argues that production requires credit to materialize, and that one can become an entrepreneur by previously becoming a debtor…what the entrepreneur first wants is purchasing power before he requires any goods. Specifically, he sees financial intermediaries as agents of growth. Demirguc-Kunt (2008) stresses that financial systems help mobilize and pool savings, provide payments services that facilitate the exchange of goods and services, produce and process information about investors and investment projects to enable efficient allocation of funds, monitor investments and exert corporate governance after these funds are allocated, and help diversify, transform and manage risk. The financial system, as opined by Miller (1998), plays a very crucial role in alleviating money frictions and, hence, influencing savings rate, investment decisions, technological innovations and long-run growth rate.

Contrary to the view of Schumpeter and other scholars on the importance of finance to economic growth is Robinson’s (1952), cited in Levine (2004) who stresses that finance simply follows growth and that where enterprise leads, finance follows. She argues that although growth may be constrained by credit creation in less developed financial systems, in more sophisticated systems, finance is viewed as endogenous responding to demand requirements. The demand following view states that finance actually responds to changes in the real sector and that economic growth creates a demand for developed financial institutions and services (Jung, 1986).

The third view supports the bi-directional relationship between financial system and economic growth (Demetriades and Hussein, 1996; Greenwood and Smith, 1997). Finally, proponents of the last view reject the existence of a finance-growth relationship (Lucas, 1988).

The debate revolves around the role of bank and capital market in promoting economic growth. Among scholars who support the view on the importance of financial system to economic growth came a different line of argument. This centered on the categorization of the financial system into bank-based and market-based and the comparative importance of both systems to economic growth. Attempts were made to find out whether one type of financial system better promotes economic growth than the other (Arestis, et. al., 2005). Using data from UK and US as market-based versus Japan and Germany as bank-based, studies have shown the relevance of financial structure, that is the degree to which a financial system is bank-based or market-based to economic growth (Hoshi, et. al., 1991; Mork and Nakkrumura, 1999; Weinstein and Yafeh, 1998; and Arestis, et. al., 2001). However, this relevance has been criticized since these countries in the past have shared similar growth. This has widened the debate along four competing theories of financial structure; bank-based view, market-based view, financial services-based view and legal based view.

The bank-based view emphasizes the importance of banks in identifying good projects, mobilizing resources, monitoring managers, and managing risk while stressing the deficiency of market-based economies. It points out the short-coming of the market-based financial system as revealing information publicly, thereby reducing incentives for investors to seek and acquire information. Information asymmetries are thus accentuated, more so in market-based rather than in bank-based financial systems (Arestis, et. al., 2005). The bank-based view therefore, stresses the importance of financial intermediation in ameliorating information asymmetries and inter-temporal cost. Information asymmetries may introduce inefficiency in the system and reduce the level of activity, increase sensitivity to disturbances such as changes in the riskless interest rate and or in productivity (Gertley, 1988). According to the bank-based view, bank-based financial systems, especially, in countries at an early stage of economic development, are more effective at fostering growth than market-based financial systems.  Levine (2004) posits that financial intermediaries improve   (i) acquisition of information on firms,   (ii) intensity with which creditors exert corporate control, (iii) provision of risk reducing arrangements, (iv) pooling of capital, and (v) ease of making transaction.

The bank based financial system is seen to be in a better position to address agency problems and short-termism than the market-based (Stiglitz, 1985; Singh, 1997). Furthermore, banks may be more effective in providing external resources to new firms that require stage financing because banks can more plausibly commit to making additional funding available as the project develops than markets that may have more difficult time in making credible, long term commitment.

Arestis and Demetriades (1993) assert that the basic features of a bank-based financial system are; Close involvement of banks with industrial firms, Companies having committed and knowledgeable shareholders with strong bank presence on management boards and Companies relying on bank loans and not so much on equity with banks exercising important monitoring roles.

The market-based view on the other hand highlights the positive role of market and stresses the problem with the bank-based view. Powerful banks can stymie innovation by extracting informational rents and protecting established firms with close bank-firm ties from competition (Hellwig, 1991; Rajan, 1992). It further stresses that powerful banks with few regulatory restrictions on their activities may collude with firm managers against other creditors and impede efficient corporate governance (Hellwig, 1991; Wenger and Kaserer, 1998). According to the market-based view, markets reduce the inherent inefficiencies associated with banks and enhance economic growth (Levine, 2002). Stock market influences information acquisition, corporate control, risk management and savings mobilization (Levine, 2000). It contributes to economic growth by enhancing liquidity of capital investments (Levine, 1997). A liquid equity market allows savers to sell their shares easily if they so desire thereby making shares relatively more attractive investments. According to Osinibu (1998), the stock market is an economic institution, which promotes efficiency in capital formation and allocation. It enables governments and industry to raise long-term capital for financing new projects, and expanding and modernizing industrial or commercial concerns. If capital resources are not provided to those economic areas, especially industries where demand is growing and which are capable of increasing production and productivity, the rate of expansion of the economy often suffers. As countries pass through stages of development, they become more market-based than bank-based (Boyd and Smith, 1998).

Arestis and Demetriades (1993) assert that the basic feature of a market-based financial system is having highly developed markets. Most external long-term funds are raised from the capital market which is an open and active market in encouraging mergers and takeovers. This market provides substantial amounts of financing to industries.

The financial service view supports neither the bank-based nor the market based financial structure but sees the importance of both systems in promoting economic growth. These financial systems do not compete but exist to ameliorate different cost (Levine, 2000).  According to the financial services view, both financial systems should be seen as complementing each other rather than substituting. This view stresses the importance of creating an enabling environment where these financial systems can provide sound financial services rather than distinguishing between the two.

The Legal based view is an extension of the financial services based view and it posits that it is the overall level and quality of financial system as determined by the legal system that helps improve the efficient allocation of resources and economic growth. It argues that a well functioning legal system facilitates the operations of both banks and markets (Laporta, et. al., 1997, 1998, 1999).

Earlier works along this line used cross-country data. Researchers were encouraged to broaden the argument along individual country, particularly developing countries in order to capture individual country peculiarities. In Nigeria case studies, some works examine financial system and growth along four theories of financial structure; bank-based, market-based, financial services and legal-based in order to ascertain which theory is most consistent with the Nigerian financial system (Olofin and Afangindeh, 2008; Sabiu, et. al., 2009; Ujunwa, et. al., 2012). It remains inconclusive as to which components of the financial system better promotes economic growth. This study therefore sought to assess bank-based and market-based financial systems in order to ascertain their impact on economic growth in Nigeria.

1.2       Statement of Problem

One of the problems militating against the rapid growth of developing economies is the inadequate provision of investible funds. To this direction, it has been posited that the Nigerian financial system, like those of other developing countries particularly in the Sub-Saharan Africa, has overtime remained weak and a cause for concern to policy makers (Adejuwon and Kehinde, 2011). Policy makers in addressing this issue have come up with several financial reforms which have focused more on the banking sector without paying adequate attention to the capital market. For instance, Recapitalization and Consolidation exercise in the banking sector, bail-out of banks without equal concession to the capital market even though it was affected drastically by the global economic melt-down, Removal of corrupt bank directors among others.

The capital market which is also an important segment of the financial system seems to have been neglected despite the crucial role it played during the bank recapitalization and consolidation in Nigeria. Al Faki (2006) puts the figure that was raised by banks from the capital market as N406.4 billion. Since then, many banks have gone to the capital market to raise additional capital for purposes such as expansion and enhancement of operational efficiency through investment in Information Communication Technology (Donwa, P. and J. Odia, 2011). This emphasis on the banking sector which portrays Nigeria as having a bank-based financial system now raises an important research question: Does one segment of the financial system better promote economic growth than the other?

Some studies in Nigeria have examined the structure of the Nigerian financial system based on the bank-based and market-based financial systems view. The bank-based view sees banks as being better at promoting economic growth than the market while the market-based view says the markets are better at promoting economic growth.(Sabiu, et. al., 2009; Olofin and Afangideh, 2008; Ujunwa, et. al., 2012). Some of their findings classified the Nigerian financial system as bank-based and suggest that government should intensify efforts at promoting banking stability. The basic feature of a bank-based financial system is the close involvement of banks with industries through long-term financing but banks in Nigeria do not have much of such close ties with industries. A market-based financial system is characterized by highly developed market but the Nigerian capital market is still developing.

It therefore becomes imperative to investigate bank-based and market-based financial systems in Nigeria with a view to ascertaining their adequacy as stimulators of economic growth.

1.3       Objectives of the Study

The objective of this study is to assess the impact of the financial system on economic growth in Nigeria based on bank-based and market-based financial system views. To achieve this, the study sought to fulfill the following specific objectives;

1. To investigate the impact of bank credit to private sectors on economic growth in Nigeria.
2. To assess the impact of bank assets on economic growth in Nigeria.
3. To investigate the impact of total value of shares traded on economic growth in Nigeria.
4. To assess the impact of market capitalization on economic growth in Nigeria.

1.4       Research Questions

This study sought to provide answers to the following research questions:

1. To what extent does bank credit to private sectors impact on economic growth in Nigeria?
2. To what degree do bank assets impact on economic growth in Nigeria?
3. To what extent does total value of shares traded impact on economic growth in Nigeria?
4. How does market capitalization impact on economic growth in Nigeria?

1.5    Research Hypotheses

To achieve the above objectives, the following hypotheses were formulated and tested:

1. Banks’ credit to private sector does not have a positive and significant impact on economic growth in Nigeria.
2. Bank assets do not have a positive and significant impact on economic growth in Nigeria.
3. Total value of shares traded does not have a positive and significant impact on economic growth in Nigeria.
4. Market capitalization does not have a positive and significant impact on economic growth in Nigeria.

1.6       Scope of the Study

This study examined the Nigerian financial system and economic growth based on bank-based and market-based financial system views. The aggregate data were collected from Central Bank of Nigeria statistical bulletin, Nigerian Stock Exchange annual reports and statements of account and Central Bank of Nigeria annual reports and statements of accounts. The specific data include banks’ credit to the private sector, bank total assets, total value of shares traded, total market capitalization and real gross domestic product.

The study covered the period 1991-2010. In the year 1991, following the spate of large scale distress in the financial system, the banks and other financial institutions Decree 25 (BOFID) was promulgated to monitor the operations of the banking and financial sector and reduce the tide of distress. The Central Bank of Nigeria Decree of 1991 was also promulgated. This decree expanded the functions of the Central Bank granting it greater autonomy in monetary policy and repealed the Central Bank of Nigeria Act 1958. The Inter-ministerial Committee on the Nigerian Capital Market recommended the discontinuation of official pricing of securities as well as the establishment of more stock exchanges in 1991.

1.7      Significance of the Study

Most works done along this line have always been cross-country studies among developed countries but this study is on an individual country Nigeria which is still at its development stage. This study therefore is expected to be of immense benefits to the following:

Financial System Regulators: This study will assist regulators such as the Central Bank of Nigeria and Securities and Exchange Commission in making policies that are geared towards developing the Nigeria financial system to enable them compete with their counterparts in other countries.

Government: This study will also be of benefit to the government in ensuring long-term macroeconomic stability and creating conducive environment for both investors and savers to ensure confidence in the Nigerian financial system.

Body of academia: In the academic arena, this study will contribute to the enrichment of the literature on financial system and economic growth. It will also serve as a body of reserved knowledge to be referred to by researchers.

1.8 Limitation of the study

Due to unavailability of data, this study did not include other indicators of bank-based and market-based financial systems such as net interest margin, overhead cost, Liquid liability and turnover ratio. It also did not include other components of the Nigerian financial system such as Insurance companies, Finance houses, Mortgage banks, among others.

Download Full Material-N5000