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CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

A major engine of economic growth and development in any nation it its financial market. It impacts in directly and positive on the economy providing financial resources through its intermediation process, for the financing of short, medium and long term projects (AL-Faki, 2007). Finance is one of the basic organic functions of any organization revolves, be it a profit seeking or non profit concern financial management decision are sing anon to all other organizational decisions, therefore the way the finance of a firm is manage determines to a very large extent it survival and growth it is a function practiced by all organization irrespective of type, form or size, and has been very dynamic over the years basically as a result of the changing environment of business (Ajayi, etal 2003). To facilitate financial transactions therefore, commercial banks are provided.

Banks refer to financial institutions who serve as a store of money and other valuable items, generally. Banks offer financial services such as keeping money for individual people of companies, exchanges currencies, makes loans, are offers financial services. (A.L FAKI 2007).

Banking therefore, is the business, the basic services to consumers are business, the basic services a bank are checking accounts, which can be used like money to make payments and time deposits that can be used to save money for future use. Loans that consumer and businesses can use to purchase goods and services and basic cash management services such as check cashing and foreign currency exchange four types of banks specialize in offering these basic banking services, Commercial Bank, savings and loans association, saving banks and credit union. (Redmond, 2007).

A broader definition of bank is nay financial institution that receives, collects, transfers pays exchanges lends, invest, or safeguards money for it customers. This boarder’s definition includes many other financial institutions that are not usually thought of the broadly defined banking services, these institutions include finance companies, investment companies, investment banks, insurance companies, pension funds, security brokers and dealers, mortgage companies, and real estate investment trusts.

Banks services are extremely important in a free market economy such as that found in advanced economics of the world, including Nigeria, Britain, Canada, and the United State. Banking services serve tow primary purposes, first by supplying customers with the basic mediums of exchange (cash checking accounts, and credit cards) Banks play a key role in the way goods and services are purchased. Without these familiar methods of payment, goods could only be exchange by barter (trading one good for another) which is extremely time consuming and inefficient, second, by accepting money deposits from solvers and then lending the money to borrowers, banks encourage the flow of money to productive use and investments this is in turn allows the economy to grow. Without this few, saving would sit idle in someone safe or pocket, money would not be purchase cars or houses, and business would not be able to build the new factories the economy needs to produce more goods and enabling the how of money from savers to investors is called financial intermediation, and it is extremely important to a free market economy.

Commercial Banks are therefore a specialized type of financial institution that deals in loans to commercial and industrial business. Commercial Banks are owned by private investors, called stockholders or by companies called holding companies the vast majority of Commercial Banks are owned by baking holding companies (A holding commercial banks are for profit organizations. Their objective is to make profit. The profits either can be paid out to bank stockholders or to the holding company in the form of dividends of the profits can be retained to build capital (net worth). Traditionally have the broadest variety of assets and liabilities their historical specialties have been commercial lending to business on the asset side and checking accounts for businesses and individuals on the liability size. However, also make consumer loans for automobiles and other consumer goods as well as real estate (mortgage) loans for both consumers and businesses. The projects, which could be promoting by government or private institutions, are usually in such areas as infrastructure, agriculture, solid minerals, manufacturing and the real estate sector. Hence, without an efficient financial market the economic may be starved of required long term fund for sustainable growth. Essentially the study is exploratory and the case studies are confined to Benin City, Edo State. This does not however reduce the flavour and value of the findings.

STATEMENT OF PROBLEM

Finance has been noted to be the lifeblood of any investment, without which no physical development or feasible business transaction can take place. The Nigeria business and investment market, particularly the referenced the desired expansion and has not been able to fully tap into it potentials the high and ever increasing demand for goods and services, housing and other noteworthy tools of development. This is as a result of the fact that lump sum capital are usually required to execute most business operations, particularly, the real state project, which most times can not be financed with owner’s equity finance but in conjunction with loans from financial institutions. Financial institutions such as bank have a strong link with investment, business operations and the real estate market as they remain the major source of major development finance to a wide array of investors. As a result of the above discussed matters, some pertinent question are drawn which will aid the furtherance of this research. They are what are entrenched in the development of a state? What are the characteristics of Commercial Banks in the study area? What characteristics have the most significant influence on development in Edo State? What are the contributions of identified characteristic on development in Edo State?

AIM AND OBJECTIVES

The aim of this research is to asses the roles and influence of Commercial Banks in the development of Edo State. The specific research objective explored include

To analyze the concept of state development

To identify which of the characteristics of Commercial Banks in the study area.

To identify which of the characteristic has the most significant influence in development in the study area.

To asses the contribution of identified characteristic on development in the study area.

SCOPE OF STUDY

The study is essentially aimed at investigation of the role and influence of Commercial Banks in the development of Edo State. Ideally, a study of this nature should cover all Commercial Banks and a wide array of financial institutions within the financial market, as this will provide a basic for comparative evaluation and analysis. Time and cost are serious constraints to the study. These have confined the scope of this study in term of geographical location type of Commercial Banks covered are time from used in this research period.

First, the study is limited to Commercial Banks in the commercial district of Benin City, this sub-market is considered appropriate for this study because Benin City is the states capital, and it has their zonal head offices there, hence capital decisions are carried out from there.      

Secondly, among the different categories of Commercial Banks within the study area, First Bank of Nigeria (FBN) Plc. Is referred because of apparent consistency, old age and availability and willingness in offering relevant information on the bottleneck in the research process.

JUSTIFICATION/NEED OF STUDY

The significance of this study is to add to the general body of knowledge to enlighten researcher’s students and the general public on the effect of Banks. The role and influence of Commercial Banks in the development of a society particularly, in Edo State. it is also intended to fill the empirical gap (little information on the subject matter in the body of knowledge.

This work would also establish the extent, to which the Commercial Banks and financial institutions in general has and can impact on the economy as a whole.

AREA OF STUDY

Edo State, which is referred to as the Heart Beat of Nigeria “was created from the old Bendel State on the 27th of August, 1991, and it has it capital in Benin City. It covers a totals area of 17, 80km2 (6, 873,4 sqmi) and it ranked as 22nd from Nigeria 36 states. It has a total population of about 5000000 people (2006 census) according to the 2007 estimate, it has GDP of $11.89 billion and a per capital income of $3, 623. Edo State is a bounded in the north and east by Kogi State, in the south by Delta State and in the west by Ondo State. it is split into 18 local government areas. Edo is a centre of education, having one federal university, a state university and two private universities, it federal polytechnic a state polytechnic and series of private polytechnics, the state has three college of education or education, amidst other institutions of higher learning.

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