CHAPTER ONE

1. INTRODUCTION

1.1   BACKGROUND OF STUDY

        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 underdevelopment 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 2002 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.

Banks as a financial institution has the major role of lubricating the gears facilitating the economic operations of a nation. The banking system plays a major role in moving funds from the saving units to the spending units. To mention a few, if a financial system is efficient, it should show improvements in profitability, increasing the volume of funds flowing from saver to borrowers, and provide better quality services for consumers.

As financial intermediaries, banks play an important role in the operation of an economy. This is particularly true in the case of Nigeria where all other sectors have to relate with banks to carry out their operations effectively either as a debtor or creditor. Moreover, banks are the sole dealer of funds, and their stability is of great importance to the financial system. As such, an in depth understanding of determinants of their profitability is necessary and vital to the ability of an economy to resist crisis.

In banking literature, the determinants of profitability are empirically well explored although the proxy of profitability varies among studies. Some employed, Return on Asset, Return on Equity,

Net Interest Margin, Return on Average Asset and so on.

1.2   STATEMENT OF THE PROBLEM

        The Nigeria’s currency has greatly depreciated against most traded world currencies in the world and has been experienced over the last few years in addition to a widening current account deficit. These unfavorable macroeconomic developments may result to great problems in banking industry when the management deeds are far-off reflecting the recurring nature of the economy in its decisions. For long run survival, it is very critical for a bank to identify issues increasing or decreasing banks’ returns thus enabling its long term survival and this increases initiatives by increasing its profitability by managing the controlling determinants. Finally, several research has been carried out on the macroeconomic variables but not even a single research has been carried out on macroeconomic variables and productivity of deposit money banks in Nigeria.

1.3   AIMS AND OBJECTIVES OF STUDY

        The main of the study is to examine macroeconomic variables and productivity of deposit money banks in Nigeria. Other specific objectives of the study include;

1. to determine the factors affecting macroeconomic variables and productivity of deposit money banks in Nigeria.
2. to determine the effect of macroeconomic variable on the productivity of deposit money banks in Nigeria.
3. to determine the influence of macroeconomic variable on the productivity of deposit money banks in Nigeria.
4. to proffer possible solutions to the problem.

1.4   RESEARCH QUESTIONS               

1. What are the factors affecting macroeconomic variables and productivity of deposit money banks in Nigeria?
2. What is the effect of macroeconomic variable on the productivity of deposit money banks in Nigeria?
3. What is the influence of macroeconomic variable on the productivity of deposit money banks in Nigeria?
4. What are the possible solutions to the problem?

1.5   STATEMENT OF RESEARCH HYPOTHESIS

H0:   Macroeconomic variables have no significant effect on the productivity of deposit money banks in Nigeria.

H1:      Macroeconomic variables have significant effect on the productivity of deposit money banks in Nigeria.

1.6   SIGNIFICANCE OF STUDY

        The study on macroeconomic variables and productivity of deposit money banks will be of immense benefit to commercial banks stakeholders, finance students’, researchers’, academicians and scholars, finance professionals, government agencies and policy makers. The study will be practically useful to the commercial banks shareholders as they will be aware whether treasury top management tasked with value addition of their investments are making viable decisions based on macroeconomic variables. Moreover, the study will be of great benefit to management in knowing the correlation between risk-adjusted returns and macroeconomic factors. Finally, the study will contribute to the body of existing literature and knowledge to this field of study and basis to further research.

1.7   SCOPE OF STUDY

        The study on macroeconomic variables and productivity of deposit money banks in Nigeria will cover from 2000-2017.

1.8   LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9   DEFINITION OF TERMS

Macroeconomic:     This is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole.

Variable:  Not consistent or having a fixed pattern; liable to change.

Productivity:  The state or quality of being productive.

Deposit:  A sum of money paid into a bank or building society account.

Bank        Is a financial institution that accepts deposits from the public and creates credit.  Lending activities can be performed either directly or indirectly through capital markets.