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This study examines the determinants of savings in Nigeria   between 1980 -2007, which will enable us to proffer solution for the improvement of savings in the economy, since it is an important component of the economic development of any country. On the basis of available data, the study is of the view that savings output in Nigeria during the period was generally unsatisfactory  and discouraging until of late when it was recognized as an important ingredient for growth and development. It was discovered that real GDP per-capita has the highest effect on financial savings in this research work. The findings of this research work shows that for savings to rise to a significant level in the economy, incentives on savings should be grossly considered by the public, private and government. Policy recommended included: strengthening  the legal framework of the financial sector, creating and maintaining a stable macroeconomic environment for savings and investment, development of  appropriate saving scheme, fostering the development of the money market and the facilitation and  establishment of the financial institutions and their branches in the rural areas, as well as the financial instruments and services they  offer

                                           CHAPTER ONE



The financial system is a collection of various institutions, markets, instruments and operators that interact within an economy to provide financial services. The services provided include resource mobilization and allocation, financial intermediation and foreign exchange transactions. The Nigeria financial system can be categorized into two viz; the formal or organized and informal or unorganized financial system. The informal sector comprises of local money lenders (ESUSU), the thrifts and savings associations etc. it is poorly developed, limited in readiness and not integrated into the formal financial system, but plays a major roles in the Nigerian financial system. While the formal financial system on the other hand can be further categorized into capital and money market institutions and these comprise of the banks and non-banks financial institutions.

The crucial role played by the financial system in the economic development of an economy was recognized by Goldsmith (1955), Cameron (1967), McKinnon (1973) and Shaw (1973), they demonstrated that the financial sector could be a catalyst of economic growth if it is well developed and healthy. Over the past decades, the declining trends in saving rates in Nigeria have been of great concern to policy makers and researchers. This is due to the critical importance of savings for the maintenance of strong and sustainable growth in the world economy particularly in Nigeria.

Statistics around the globe have shown that savings rates have doubled in East Asia and stagnated in sub Saharan Africa, Latin America and the Caribbean (Loayza, Schmidt-Hebbel and Jerven, 2000). The benefits accruable from a healthy and developed financial system relate to savings mobilization  and efficient financial intermediation roles (Gibson and Tsaka lobos, 1994), First, through the financial intermediation functions of financial institutions, savers and borrowers are linked up and this reduces transactions and search costs. Second, they create liquidity in the economy by borrowing short-term and lending long-term. Third, they reduce information costs, provide risk management services and reduce risks involved in financial transactions. Fourth, the intermediaries bring the benefits of assets diversification to the economy. Fifth, they mobilize savings from atomized individuals for investment, thereby solving the problem of indivisibility in financial transactions.

The Nigerian financial system comprises the regulatory/supervisory authorities, bank and non-bank financial institutions. As at end -2007, the system comprised of the Regulatory/ Supervisory authority, the central Bank of Nigeria (CBN), the Nigerian Deposit Insurance Corporation (NDIC), the Securities and Exchange Commission (SEC), the National Insurance Commission (NAICOM), the National Pension Commission (NPC), and the Federal Mortgage Bank of Nigeria (FMBN). The CBN is the principal regulator and supervisor in the money market, consisting of Deposit Money Banks (DMBs), Discount Houses, the People Bank of Nigeria and Community Banks. The CBN exclusively regulates the activities of Finance Companies and promotes the establishment of specialized or development financial institutions. The SEC is the apex regulatory/ supervisory authority in the capital market. The Nigerian Stock Exchange (NSE) is a self-regulatory or user- regulatory institution. The Issuing Houses, Registrars and stock brokers, who also interact with the money market, complete the chain in the capital. The Federal Ministry of Finance, together with the CBN constitutes the monetary authorities and share control over Bureau de change. The NAICOM is the regulatory authority in the insurance industry, while the FMBN regulates mortgage finance activities in Nigeria. There are also 24 deposit money banks (DMBs), 750 community banks, 112 finance companies, 703 Bureau –de-change, 1 stock exchange, 1 commodity exchange, 93 primary mortgage institutions, 5 development finance institutions, 77 insurance companies, 709 microfinance  banks, and 581 registered insurance brokers. (CBN Annual Report and statement of Accounts, 2007).

Savings refers to the deposit and saving abilities acquired by the organized financial institutions including bank and non-bank financial intermediaries or it is described as a financial assets accumulated by the public – both government and private agents in the organized financial channels. These financial assets include savings and time deposits in the banking institutions, provident funds, insurance premium, stocks and bonds etc. as was stated earlier on. The intermediation process involves moving funds from surplus sectors/ units of the economy to deficit sectors/ Units (Uremadu, 2002, Odoko, Nnanna and Englama, 2004). The   expansion of financial savings involves shifting of funds from the personal and household sector to the business or corporate sector which in turn, leads to greater investment, employment and income growth. The extent to which this could be done depends on the level of development of the financial sector mentioned above as well as the savings habit of the populace. The availability of investible funds is therefore regarded as a necessary starting point for all investments in the economy, which will eventually translate to economic growth and development (Uremadu, 2006). In Nigeria Nnanna, Odoko and Englama (2004) are of the view that the level of funds mobilization by financial institutions is quite low due to a number of reasons, ranging from low savings deposits rates of the poor banking habit or culture of the people. According to them, another disincentive to funds mobilization is the attitudes of banks to small savers.

Theoretically, nothing stops economies that are faced with different preferences, income streams and demographic characteristics from choosing different saving rates. In practice however, the inter-temporal choices that underlie saving depends on an array of market failures, externalities and policy-induced distortions that are likely to drive savings away from social levels. Development economists have been concerned for decades about the crucial role of domestic saving mobilization in the sustenance and reinforcement of the saving-investment-growth chain in Nigerian economy. The relationship among saving, investment and growth has historically been very close; hence, the unsatisfactory growth performance of several developing countries. Example; Nigeria has been attributed to poor saving and investment. This poor growth performance has generally led to a dramatic decline in investment. Domestic saving rates have not fared better, thus worsening the already precarious balance of payments position (Chete, 1999). In the same vein, attempts to correct external imbalances by reducing aggregate demand have led to a further decline in investment expenditure, thus aggravating  the problem of sluggish growth and declining savings and investment in the rates (when and Villanueva, 1991).

Therefore, as earlier said, the role of savings in the economic growth of any country cannot be overemphasized. Conceptually, savings represents that part of income not spent on current consumption; when applied to capital investment, savings increase economic growth and output (Olusoji, 2003). Institutions in financial sector like deposit money banks (DMBs)/ commercial banks mobilize savings deposit on which they pay certain interest. To effectively mobilize savings in an economy, the deposit rate must be relatively high and inflation rate stabilized to ensure a high positive real interest rate, which motivates investors to save from their disposable income. In Nigeria, one of the problems of mobilizing savings and deposits has always been a major problem for economic growth and development.

In Nigeria, there is basically lack of inducement to savings which had adversely affected savings. Some of these inducements or incentives include; poor banking habits, attitudes of banks to small savers, poor orientation, unemployment, employment, instability in the banking system, instability in the political system etc.


In Nigeria, the saving culture is very poor relative to other developing economies (Uremadu, 2006) and that necessitates the need to put in place a coherent economic policy that will be capable of providing the much needed enabling environment and also there is an urgent need to encourage Nigerians to change their current attitude towards saving, thereby placing the right saving culture by institutions and regulatory agents who influence the decisions of households, firms and government. For instance, during the period 1986 to 1989, domestic savings averaged 15.7% of Gross domestic product (GDP) and however with the distress in the financial sector of the 1990s, the rate of aggregate saving declined significantly. (CBN, Statistical Bulletin, 2006). The distress syndrome resulted in a significant fall in domestic saving in the period 1990 to 1994 with the saving to GDP ratio dropping to 6 %.( CBN, statistical bulletin, 2006).

With the rate of savings standing at only 6.4% in Nigeria in 2004, there is the need to examine the main constituents of growth or fall in savings in Nigeria. As pointed out earlier, since national policy- be it macroeconomic or microeconomic- generates variables which could influence the propensity of economic and financial actors to save. This research work would attempt to examine from policy perspectives, the magnitude and direction of such variables as: interest rate, income, growth, urbanization, foreign (aid) sector, fiscal policy etc. on savings in Nigeria.





The aim of this study is to examine, in time and space the main determinants of savings in Nigeria, in order to situate them within the general performance of the Nigeria national economy.


In the light of the above problems, the objectives of this research work include:-

  1. To ascertain the determinants of savings in Nigeria.
  2. To determine the impact of saving on the economic growth.
  • To ascertain the relationship between savings and economic growth


The hypotheses to be tested in this research work are:

H0: the factors that influence savings have no significant determinant in Nigeria.

H1: the factors that influence savings have a significant determinant in Nigeria

H0: savings have no significant impact on economic growth in Nigeria

H2: savings have a significant impact on economic growth in Nigeria



This research work will be of immense help to policy formulators particularly those involved in the development of the Nigerian economic agenda. It will help them in choosing the appropriate policy in the macroeconomic policy management, particularly those affecting savings in Nigeria.

Also, through the findings and suggestions of this research project work, a greater awareness will be generated in the financial arena or sectors so as to appreciate the efforts being carried out by the federal government of Nigeria through the Central Bank of Nigeria and Federal Ministry of Finance in improving the policies affecting positively saving in recent years.

Finally, this study will assist in a modest way to increasing students’ knowledge on the practical and real-life situations of the theories they learn in the everyday classroom.



This study investigated the determinants of bank savings in Nigeria as well as examined the impact of bank savings and bank credits on Nigeria’s economic growth from 1980- 2007. Stressing that a positive relationship exists between the lagged values of total private savings, private sector credit, public sector credit, interest rate spread, exchange rates and economic growth. However the research has some constraints which are;

Time: the time at the disposal of the researcher which is allocated for the study was a major limitation as the researcher has to combine other academic work with the study.

Finance: The finance at the disposal of the researcher in the course of the study does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.


Savings: Savings here refers to the deposit and liabilities acquired by the organized financial institutions including bank and non-bank financial intermediaries.

Bank: A 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. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities.

Credit: Credit is the trust which allows one party to provide money or resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead promises either to repay or return those resources (or other materials of equal value) at a later date.[1] In other words, credit is a method of making reciprocity formal, legally enforceable, and extensible to a large group of unrelated people.

This material content is developed to serve as a GUIDE for students to conduct academic research



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