THE ROLE OF DEPOSIT MONEY BANKS IN NIGERIAN ECONOMY
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The role of banks and other financial institutions in economic development has been richly articulated in the literature. Pioneer contribution of Schumpeter (1934) was of the view that financial institutions are necessary condition for economic development. This view has been variously corroborated by other scholars like Goldsmith (1969); Cameron (1972) etc. In view of the importance of the financial sector in economic development, bank failures are widely regarded in all countries as more damaging to the economy than failure of other types of firms. For instance, bank failure may produce losses to depositors and other creditors, break long-standing bank- customer loan relationships, disrupt the payments system and spill over to other bank, financial institutions and markets and even to the entire macro-economy.
In recent times, economic development has become a major social - political issue in the world debate. This is not due to any sudden discovery of the extent of poverty in the world, but rather to a change in social attitudes towards its existence.
The facts on poverty and under-development have always been available, at least in general outline-for anyone who cared to look at them. The difficulty has been to get the governments and private individuals to regard alleviation of poverty as a condition that requires urgent and significant efforts. This view was not generally accepted until after the Second World War when most colonial territories had achieved political independence (Balwin, 2000). After becoming free of external control, these emerging nations immediately set out for higher living standards and most instituted domestic reforms designed to stimulate economic growth. The general belief of citizens of the new countries was that the developed countries had not only tended to neglect the economic welfare of most of the population in the less developed countries, but also that the advanced countries had used their greater economic and political power to obtain an unfair share of the income gains from doing business with the less developed nations (Balwin, 2000).
However, in order to address these challenges of under-development and chronic poverty in the third world countries, Nigeria inclusive, the financial system and in particular the deposit money banks have been identified as key elements in the development process and poverty alleviation. Deposit money banks in developing countries as elsewhere in the world are expected to play a crucial role and assist in economic development. It was in consonance with this overall need for faster economic growth and the critical place of deposit money banks in the process, that Nigerians made their first effort in 1928 to 1952 to start indigenous banks. This was against the background that expatriate banks were not giving favorable terms in their relationship with Nigerian businessmen (Adekanye, 2005). As a result of this, many Nigerian businessmen were unable to have access to loans and advances from these expatriate banks. The major reason given by the foreign banks was that Nigerian businessmen lacked collateral securities to support such loans and advances.  The activities of commercial banks as engine of growth of the economy could better be seen through the performance of their main function which include taking of deposits from the general public, providing account keeping and money transmission services and granting lending facilities (Crockett, 1970). Indeed, in an efficiently functioning financial system, the size of a bank’s business, or that of any other financial intermediary, depends on its ability to attract funds in competition with other institutions (Crockett, 1970). This ability will depend on the attractiveness to depositors of the package of services it offers. This package will consist of the interest rate paid, security offered, convenience in account management facilities, financial advice etc. Banks also play very important roles in the trans-mission of monetary policies. This is made possible by the fact that, the liabilities and assets of banks form a good part of the money supply through the money multiplier. For instance, if government intends to reduce the volume of money in circulation; the monetary authorities would achieve this by applying a set of contractionary monetary policies. On the other hand, expansionary monetary measures could be used to increase the supply of money and credits. In this respect, banks facilitate the process of macro-economic stability in the country.  
There is a growing concern that deposit banks in Nigeria have not been living up to expectation in terms of service delivery, to their customers. Many people allege that these banks have abandoned their traditional banking functions in pursuit of short-term money spinning ventures like round tripping in foreign exchange, money laundering and other criminal tendencies, which are inimical to the growth of the economy. Since, most of the Nigerian banks are involved in these illegal ventures, which are short term in nature and usually unstable, illegitimate and often easily check-mated by government policies, the banks themselves have become unstable, and often suffer from financial crisis and sometimes outright failure. In the event of total failure, the depositors bear the brunt of huge losses of their monies. The meager payment of maximum of N50, 000 to depositors irrespective of the amount of deposits by Nigerian Deposit Insurance Corporation (NDIC) does little to mitigate such losses. This to a large extent has eroded the confidence of the banking public in Nigerian banks.
Consequently, the banking industry and in particular the commercial banks in Nigeria have failed to develop and impact positively on the economy as expected, even though commercial banking started in Nigeria over one hundred years ago. First Bank of Nigeria Plc was established in 1894.
1.2 STATEMENT OF THE PROBLEM
The deregulatory approach to monetary management and the resultant proliferation of banking and financial institutions in the early 1990s brought about increased number of players far beyond what could be effectively managed by the Central Bank of Nigeria (CBN) as a result, the banking industry witnessed serious waved of distress that caused crisis of confidence in the industry. Since then, the CBN, and the Nigerian deposit insurance corporation (NDIC) have intensified efforts towards achieving a healthy operating environment for in the banking sector. A prominent step taken by the CBN was the 2005 recapitalization exercise during which the minimum capital base requirement of all Nigerian commercial banking was raised to N25 billion from N2 billion (adegbaju and Olokoyo, 2008)
    The success of the deposit insurance practice and the recapitalization exercise in ensuring financial stability in the banking sector has been subject of debate among analysts. Somoye (2008) analysed the published audited accounts of twenty (20) out of twenty five (25) banks that emerged from the consolidation exercise and found that the consolidation programme has not improved the overall performances of banks significantly. All the observed weaknesses culminated in huge non-performing loans and insolvency of varying degrees in many of the banks. The development led to the removal of the executive management out of the existing 24 banks (Oceanic bank, Intercontinental bank, Finbank, Afribank, bank PHB, Equatorial Trust bank and Spring bank) and the injection of a bail-out sum of N520 billion by the CBN as liquidity support to the problem banks (NDIC, 2009).in August, 2011, the federal government thought the NDIC assumed ownership of three of the problem banks (NDIC, 2009).
Due to this development, the NDIC has been under pressure to perform its responsibility t restoring stability to the banking sector the question of the effectiveness of the deposit insurance practice in ensuring stability in the banking sector remains an open one both from a theoretical and from an empirical perspective. This study seeks to evaluate the role of the deposit money bank in Nigeria economy.
1.3    RESEARCH QUESTIONS
In trying to make a critical analysis of the role of deposit money banks in Nigeria economy, the following questions will be very important as the researcher tries to provide answers to those mind bugging questions which are:
1.    To what extent has total bank deposits impacted Nigerian economy?
2.    Does the amount of loans and advances given by banks have significant impact on economic growth?
3.    How has banks profitability affected economic growth in Nigeria?
4.     What impact does a bank total asset have on the growth of Nigerian economy?
1.4 OBJETIVE OF THE STUDY
The main objective of the research is to examine broadly the role of deposit money bank and its impact on Nigeria economy. More specifically, it will:
1.    Determine the impact of total bank deposits on Nigerian economy.
2.    Ascertain the impact of bank loans and advances of deposit money banks on economy growth.
3.    Determine the impact of banks profit on economy growth.
4.    Evaluate the effect of banks total assets on Nigerian economy.
1.5 SCOPE OF THE STUDY
This study attempts to study the role of deposit money banks in Nigerian economy. The study covers the activities and impacts of sanitizing in Nigerian banks using First Bank of Nigeria Plc as a case study. Acquisitions and business reengineering are discussed.
The period chosen is from 2003-2013 in First Bank Plc of the Nigerian Banking Sector. This is to enable the researcher study the trends for about three years before sanitizing and three years after sanitizing. This is with the understanding that the time frame will only be fair and balance for comprising their performance.
1.5    SIGNIFICANCE OF THE STUDY
In the wake failure, the economy suffered severe stress. Many depositors lost their hard-earned money; many suffered starvation because their breadwinners lost the jobs in the process. In a number of cases, depositors who lost their life saving die because of apparent hopelessness. People from different spheres of life have commented on these seemingly topical issues as it touches the very fabric of the national economic life. This study is being embarked upon as a way of further investigating the issue with a evaluating the role of deposit money banks in Nigeria economy.
A good performer may also be required to sanitize for survival of its business process or reposition for further challenges in the market or to respond to certain global developments. In this regard, bank directors, corporate bodies and management that want to embark on banks’ survival strategies and corporate refocusing to achieve better results will find this as an interesting piece. For academicians, it will serve the purpose of arousing deep thoughts and genuine interest on the subject matter for further research.
1.6    LIMITATIONS OF THE STUDY
The major constraints encountered in this research work are:
1.    The obvious attempt by banks to classify most of their information that is necessary for the completion of this work due to certain management policies.
2.    The inability to collect the annual reports of many banks for various years was a slow down to this research as the staff refused to disclose the figures for analysis.