FEDERAL POLYTECHNIC OFFA, KWARA

STATE.

NAME :

DIEKOLA SAHEED AYODEJI

MATRIC NO:

BA/ND/F19/4758

DEPARTMENT:

BUSINESS ADMINISTRATION & MANAGEMENT

LEVEL:

NDll.

COURSE TITLE:

RESEARCH METHODOLOGY.
 PROJECT TOPIC:

COMMERCIAL BANK CREDIT AND ITS

CONTRIBUTIONS ON MANUFACTURING
SECTOR IN NIGERIA
LECTURE'S NAME:

MR IBRAHIM
CHAPTER ONE
INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The manufacture sector as a subsector plays a vital role I driving the industrial development
of a country. It involves the fabrication, processing, or preparation of products through
combined utilization of raw materials and other factors of production. In advanced countries,
the manufacturing sector accounts for a significant share of the industrial sector output and a
substantial proportion of the country’s gross domestic product. The manufacturing sector is
an avenue for productivity relating to import replacement and export expansion, creating
foreign exchange earnings and per capita income which causes unique consumption patterns.
In Nigeria, this sector is responsible for 10% of total GDP annually and in terms of
employment generation, manufacturing activities account for about 12% of the labour force
in the formal sector of the nations’ economy. Over the last three decades, Nigeria has
consistently regarded the promotion, growth and development of the manufacturing sector as
a crucial catalyst for transforming the country to an industrialized, economically stable and
viable one. This sector creates investment capital at a faster rate than any other sector of the
different sectors.
It was observed by Adediran and Obasan (2010) that the chance of a country been
industrialized is increased by the development of the manufacturing sector. The effectiveness
however of manufacturing industries in Nigeria is dependent on the availability of resources
such as raw material, financial capability to fund investments in modern equipment, human
resources development and technology.

1.2 STATEMENT OF THE PROBLEM

Manufacturing sector plays a catalytic role in a modern economy and has many dynamic
benefits crucial for economic transformation. It is a leading sector in many respects. It is an
avenue for increasing productivity related to import replacement and expansion, creating
foreign exchange earning capacity; and raising employment. In spite of it continuous policy
strategies to attract credits to the manufacturing sector, most Nigerian
Manufacturing enterprises have remained unattractive for bank credits. For instance, as
indicated in Central Bank of Nigeria (CBN) reports, almost throughout the regulatory era,
commercial bank’s loans and advances to the manufacturing sector deviated persistently
from prescribed minima. Furthermore, the enhanced financial intermediation in the economy
following the financial reforms of the 1990’s notwithstanding, credits to manufacturing as a
proportion to total banking credits has not improved significantly averaging 15.7% between
1990 and 1994, and 25.8% between 1995 and 2000. Consequently, many manufacturing
firms in the country have continued to rely heavily on internally generated funds which have
tended to limit their scope of operating. The major problem facing the Nigerian
manufacturing sector is having inadequate finance for investment. Because of the low level
of income of this, saving is very low. The broad objectives of this study is to evaluate
The impact of commercial bank credit on the manufacturing sector in Nigeria. The specific
objectives are:
1) To investigate the impact of commercial bank loans on manufacturing sector.
2) To establish the relationship between interest rate and manufacturing sector.

1.3 RESEARCH QUESTION

The research question for this study is
1. To what extent do commercial banks’ credits have impact on the manufacturing sector in
Nigeria?

1.4 OBJECTIVES OF THE STUDY

The broad objective of the research work is to evaluate the impact of commercial banks’
credits on the manufacturing sector in Nigeria. However, the specific objectives of this
research study are:
1. To assess the trend in commercial banks’ credits to the Nigerian manufacturing
Sector during the period under study ; and
2. To examine the impact of commercial banks’ credits on the manufacturing sector in
Nigerian.

1.5 HYPOTHESIS OF THE STUDY

H0: Commercial banks’ credits have no impact on the manufacturing sector in Nigeria.
Hi: Commercial banks’ credits have impact on the manufacturing sector in Nigeria.

1.6 SCOPE OF THE STUDY

The geographical scope of the study will centre on the Nigerian economic and will cover the
period of 1981-2015 which is 35 years with particular emphasis on the trend of commercial
banks’ credits to the manufacturing sector and it impact on the sector. the study will rely on
secondary times series data.
1.7 SIGNIFICANCE OF THE STUDY
The study found a positive and significant effect of commercial bank credit on the
manufacturing sector output in Nigeria. Specifically, the study found out that, inflation rate
and interest rate (cost of capital) negatively affects manufacturing sector output.

CHAPTER TWO

2.1 INTRODUCTION
The role deposit money bank credits with the efficient and effective performance of the
manufacturing sector cannot be over emphasized; hence federal governments’
appropriation bill in recent years has as one of its broad policy objectives to achieve a
high economic growth rate i.e. GDP of at least 5% through a better mobilization and
prudent use of economic resources. These objectives are not achievable without
significant levels of resources from the financial sector being mobilized and deployed to
finance business expansion and growth. Banks have to be effective intermediaries for
mobilizing and channeling deposit to the productive sector of the economic especially the
manufacturing sector. The Nigerian manufacturing enterprises have remain unattractive
for deposit money bank credits at low lending rate (Ogar, Nkamare, & Effiong,. 2014).
For instance as indicated in the central bank of Nigeria (CBN Report, 2009), Almost
throughout the regulatory era, Commercial banks loans and advances to the
manufacturing sector deviated persistently from prescribed minima.

2.2 CONCEPT OF COMMERCIAL BANK

Commercial banks are banks that handle credit and deposits and what distinguishes them
from others that is that they accept demand deposits and current accounts, this process is
to create money upon mere acceptance of deposits common to different types of banks,
central bank, a SAMA for a country which is accepted. They generally finance trade and
commerce with short-term loans. They charge high rate of interest from the borrowers but
pay much less rate of interest to their depositors with the result that the difference
between the two rates of interest becomes the main source of profit of the banks. Most of
the Indian joint stock banks are commercial banks.
 The two most distinctive features of a commercial bank are borrowing and lending, i.e.,
acceptance of deposits and lending money to projects to earn interest. In short banks
borrow to lend. The rate of interest offered by the banks to depositors is called the
borrowing rate while the rate at which banks lend out is called lending rate.

2.4 THEORETICAL FRAMEWORK

Banks cannot always set high interest rates. Banks should consider the problems of adverse
Selection and moral hazard since it is very difficult to forecast the borrower type at the start
of the banking Relationship (Stiglitz and Weiss, 1981). If banks set interest rates too high,
they may induce adverse selection Problems because high-risk borrowers are willing to
accept these high rates. Once these borrowers receive the Loans, they may develop moral
hazard behavior or so called borrower moral hazard since they are likely to take on highly
risky projects or investments (Chodecai, 2004). From the reasoning of Stieglitz and Weiss, it
is usual That in some cases we may not find that the interest rate set by banks is
commensurate with the risk of the Borrowers.