BANK CAPITAL ADEQUACY AND ECONOMY DEVELOPMENT

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BANK CAPITAL ADEQUACY AND ECONOMY DEVELOPMENT

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The downturn in the nation’s economy ever since termination of the Republic in 1984 and coming of the military thereafter is no longer news. Series of efforts by the various government whether sincere of insincere towards improving the betterment of the economy are also appreciated. Of importance to any economy is the financial market which comprises of both Capital Market and Money Market of lich commercial bank is an integral part. Ever since the establishment of the first commercial bank more than a century ago, the industry has witnessed a lot of topsy-turvy depending on government policies and regulations.

Years before introduction of structural adjustment program (SAP) in 1986, there were few banks working in a regulated environmentand with the coming of SAP the whole economy became porous courtesy of the regulation syndrome occasioned by preaching and teaching of SAP. What became the order of the day were the proliferation of banks and other financial institution. The banking sector was so bastardized that every nook and corner there sprang up banks. What is witnessed today is that these banks are in form of distress, which is now history.

1.2 Statement of Problem

The importance of bank capital adequacy in a country cannot be over emphasized. Commercial banks are supposed to be one of the agents by which the nation’s economy could be rejuvenated (make more lively or useful). But from the angle of the new Governor of the Central Bank of Nigeria, the banks rather than being an agent of boom to the nation have been agent of doom. They refuse to pay the economy, but rather inflict pain on the economy. They are supposed to play in the achievement of macroeconomic objective of maintaining price stability and reduction of unemployment in the economy.

1.3 Research Questions

1. What are the sources and uses of banks’ funds?

2. What is bank’s capital adequacy?

3. What are determinants of bank’s capital adequacy?

4. How are the roles of bank supervision and examination adequately being carried out in Nigeria?

5. What are the reasons for the review of the capital base of commercial banks in Nigeria from N2hn in May 2004 to N25bn in June of the same year?

1.4 Objectives of the Study

1. To highlight the sources and uses of bank’s funds

2. To find out bank’s capital adequacy

3. To find out the determinants of bank’s capital adequacy

4. To find out how roles of bank supervision and examination adequacy being carried out in Nigeria.

5. To find out the reason for the review of capital base of commercial banks in Nigeria.

1.5 Statement of Hypotheses

Hypothesis One

Ho: Inadequate bank capital base is not one of the economic developments.

HI: Inadequate bank capital base is one of the economic developments.

Hypothesis Two

Ho: N25bn capital base will not make Nigerian commercial banks to be active to their responsibilities as one of the key agents needed to achieve more economic objectives.

HI: N25bn capital base will make Nigerian Commercial Banks to be active to their responsibilities as one of the key agents needed to achieve more economic objectives.

1.6 Significance of the Study

It is hope that this study will be of benefit to the government, commercial banks and the society at large to know there responsibilities in bank adequacy and economy development.

1.7 Scope of the Study

The project work covers bank capital adequacy and economy development in Nigeria and effort will be made to study the contribution of the commercial banks to the national economy growth and development.

1.8 Limitations of the Study

It must be acknowledged that an error proof research work is hard to come by. Most especially that the basis for academic research is to find out about such errors with a view of correcting them or improving of such work. Therefore it is expected that this research work might not be an exception.

i. The scope of the study is wide and there s likelihood that justice might be done to all the years under the period.

ii. Secondly, the variables that constitute basis for economic development is numerous and such the research might he limited to those that the bank capital has direct effect on.

iii. There may be unavailability of data for some part of the period under consideration.

iv. Another limiting factor might be financial constraint as well as time constraint. However, attempt willbe made to bring these problems to the barest minimum.

1.9 Definition of Terms

Bank: Aplace where one can store, deposit, stock, money

and valuable documents for further usage.

Capital: Assets, fund, wealth, principal investments of a nation’s resources

Adequacy: Sufficient fund that satisfies the need of an economy.

Economy: The financial system of a nation resource

Capital market: The money base of the nation, where sales of stock and security is traded

Money Market: Trading of currency

Commercial Bank: Store house solemnly for the purpose of profit making.

Inadequate: Insufficiency of fund in a nation, or too little fund in circulation to meet a nation’s needs.

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