CHAPTER ONE

 INTRODUCTION

1.1   BACKGROUND OF THE STUDY

          It is universally acknowledged that the banking industry plays a catalytic role in the process of economic growth and development.  This acknowledgement is reinforced by contemporary conceptualism to the effect that banks are a veritable vehicle for mobilizing resources from surplus units and tempting same to deficit unit. Banks constitute perhaps the most important segment of the financial market through mobilizing savings, but also allocating them for investment purposes.

          In Nigeria, domestic savings rate is relatively low compared to other developing countries with the same capital income level. In the past, investment rates were high and hence there was no problem for raising funds. Under the present economic dispensation, the companions or the drive for savings deposit has been stepped up by banks and non- bank financial institutions. It is However not sufficient because the range and type of financial assets available are equally important. There is a wide range of saving instruments offered by banks and non – bank financial institutions in Nigeria today (Adewunmi, 1996:867).

          However, most of the voluntary and non – contractual financial savings consist of savings and time deposit. Although other types of deposit such as savings certificate and premium savings bonds play important roles in banks and non – banking institutions. Banking institutions are today competing strongly with additional frame benefits which almost all banks are now offering. This contractual forms of savings is aimed at persuading depositors to invest in long term deposits.

          Another area some banks are foreseeing to mobilize funds today is the mortgage saving: because large number of Nigerians need accommodation of their own but funding it is difficult with their meager income. Interest payment on deposits accounts also have some positive impact on the propensity to save. Bank have also been allowed by the government to open domiciliary account for Nigerian exporters in which the proceeds of exports can be paid or saved until when they are needed.  Transaction costs related to operating a new accounts and making deposits and withdrawals are now becoming relatively easier particularly for small savers. There is also the pension scheme which seeks to induce depositors to invest small sums of money over a specified period of time in the hope of receiving a stream of benefits upon reaching the age of retirement.

          Conversely, the crisis of confidence in our banks is a great setback for the banking system.  In the past the majority of those who patronized the banks did so in order to find safer place for their money. And for many years, banks in the country were the character of currency store house. But because of the lack of confidence in banks today, a sizeable amount of Nigerians keep their currency or cash at home and this makes most of the cash unpaired by the banks. Most of our industries depend on commercial bank assistance in form of overdraft, short term and long loans for effective operations (Alabi, 1999:5).

1.2    STATEMENT OF PROBLEM

Income possess the greatest constraint to savings mobilization. The generally low level of income among the people in Nigeria is a limiting factor to savings mobilization. The inadequate banking facilities in the economy in general and the rural areas in particular also constitute on obstacle to wide savings mobilization.

          Growing frequency of incidences of fraud, insider abuses and malpractice which all combine in an unholy alliance to erode public confidence in financial institutions and do painful damage to whatever level of banking habit has been developed.

          Another factor that may affect savings mobilization is the absence of effective realistic interest rate policy that rewards savers with adequate returns on their savings. It is argued that in as much as the rate of interest is adjusted for inflation reasons, savings are still likely to remain low. Perhaps the greatest problem in this country is that we run a cash economy, which hinders the financial intermediaries from performing their functions. This practice constrains mobilization of funds, with the consequence that banks create small amount of deposit when compared to the amount demanded as loan by the economy.

1.3            OBJECTIVES OF THE STUDY

The aim of the study is to examine the impact of saving mobilization and the available ways of achieving efficient and effective channeling on economic growth. The research is aimed at:

1.                 Examining the impact of saving mobilization on the economic development.

2.                 Recommending measures for improving greater mobilization of domestic resources in our banks.

3.                 Identifying the means throughout which the mobilized funds can effectively be channeled to the growth and development of economy.

4.                 Identifying the effect of interest rate mobilization of domestic savings.                                               

5.                 Identifying the effect of bank distress in deposit acquisition.

6.                 Determining the effects of income earned to savings mobilization.

1.4            RESEARCH QUESTIONS

(1)     Does saving mobilization have any impact on the development of the Nigeria economy?      

(2)     Has there been an improvement measure towards achieving greater dogmatic resources in our banks?

(3)     Does the mobilization of domestic savings contribute to the economic growth of the economy?      

(4)     Does the interest rate charges on the mobilization of domestic savings positive? 

(5)     Does the bank distress syndrome have any significant effect to the deposit acquisition?

(6)     Does the propensity to save income earned have effect on the mobilized savings of the bank?

1.5            RESEARCH HYPOTHESIS

To determine the validity and volubility of the information gathered the following hypothesis were formulated.

(1)     H0:    There is no significant impact of saving mobilization to the development of the Nigeria economy?      

H1:    There is a significant impact of saving mobilization to the development of the Nigeria economy?      

(2)     H0:    There has been no improvement measure towards   achieving greater domestic resources in our banks.

H1:    There has been improvement measures towards achieving greater domestic resources in our banks.

(3)     H0:    The mobilization of domestic savings does not contribute to the growth and development of the economy.

          H1:    Mobilization of domestic savings does contribute to the growth and development of the economy. 

(4)     H0:    The interest rate has no positive effect to the mobilization of domestic savings.

          H1:    The interest rate has a positive effect to the mobilization of domestic savings.

(5).    H0:    The bank distress has no significant effect to the deposit acquisition. 

          H1:    The bank distress has significant effect to the deposit acquisition. 

(6).    H0:    There is no significant relationship between income earned by the people and the mobilization of domestic savings by the banks.      

          H1:    There is significant relationship between income earned by the people and the mobilization of domestic savings by the banks. 

1.6            SIGNIFICANCE OF THE STUDY 

This study intends to elicit body of knowledge and understanding the impacts and problems of mobilizing domestic savings by banks. If the recommendations of this research are implemented, it will help to change the banking habits of people. It will also help the managers and staff of banking industry in Nigeria to improve on their fund mobilization strategy.

1.7            SCOPE, LIMITATION AND DELIMITATIONS

This study examines the impact of saving mobilization for economic growth and development. The study covers the impact of mobilizing domestic savings, the strategies employed by banks in mobilizing these savings and the problems associated with the mobilization. It also takes a general view on the ways of improving greater mobilization of domestic resources by the bank which all in turn enhances economic growth.

          The researcher broadly examines the research topic as a whole and then narrowed it down on the effort of the Union Bank of Nigeria, PLC.

In mobilizing these domestic funds certain constraints were encounter by the researcher during this study, they include;

TIME:  Time was a major constraint, bearing in mind that the work had to be handled side by side other academic responsibilities of the researcher and coupled with the short time required to submit this work due to a very short semester. 

FINANCE:  This was another factor as the researcher fund the costs of gathering and analyzing information (both primary and secondary), costs of typesetting, photocopying materials, binding and other expenses, which are necessary for the effective completion of this work. This costs is very exorbitant.

1.8            DEFINITION OF TERMS

SAVINGS:          This is the part of income that is not consumed immediately, but deferred for investment or future consumption.

DOMESTIC SAVINGS:  This consist of savings from the citizens of the country and from foreigners.

CBN: Central Bank of Nigeria, which is the apex financial institution in the country.

NIGERIAN BANKING INDUSTRY: This is the banking institutions in the country, which include the commercial banks, Merchant banks, development banks etc.  All these banks are controlled by the Apex bank (CBN). 

UNION BANK OF NIGERIA PLC: This is one of the leading banks in the country, both by deposit and assets, with about 400 branches nationwide.

BANKER:  A banker is a person who works in an institution licensed to carry out the banking business.

DEPOSITORS:   These are bank customers who keep money of value with the banks on contractual terms.

DISTRESS: A bank may be classified distress when it is unable to meet the bank examination rating system.

BOFID:  Banks and other financial institutions Decree.

RURAL BANKING: This involves the establishment of banks in rural areas to cultivate banking habit among the rural dwellers.