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Assessing the Role of Commercial Banks on Economic Growth in Cameroon

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Bachelor Thesis
Assessing the Role of Commercial Banks on Economic
Growth in Cameroon

7/11/2011
University of Buea
Faculty of Banking and Finance
njinyam@live.com

By
Marius Niba IKOME NJINYAM
Marius Niba IKOME NJINYAM 2
CERTIFICATION

This is to certify that the research project entitled “Assessing the role of commercial banks
on economic growth in Cameroon” is presented by MARIUS NIBA IKOME NJINYAM
(SMO8AXXX) meets the requirements and regulations governing the award of a Bachelor of
Science (B.Sc) in Banking and Finance in the University of Buea. It is therefore approved for
its contribution to scientific knowledge and literary presentation.

Dr. Backe Itoe (Supervisor) Date

Marius Niba IKOME NJINYAM 3

DECLARATION

I, MARIUS NIBA IKOME NJINYAM (SMO8AXXX), hereby declare that this project entitled
“Assessing the role of commercial banks on economic growth in Cameroon” has been
written by me and it is a record of my research effort. All borrowed ideas have been duly
acknowledge by means of references and quotation marks.

Date
MARIUS NIBA IKOME NJINYAM

Marius Niba IKOME NJINYAM 4

DEDICATION

This piece of work is dedicated to my lord and savior Jesus

Christ, my parents, Mr. NJINYAM STEVEN and Mrs. DOREEN
NJINYAM, my elder brother JERRY NJINYAM and all my close
friends who played any role for this work to be achieved.

Marius Niba IKOME NJINYAM 5

Acknowledgement

I wish to express my gratitude most especially to the

almighty God for his guidance and protection and other
countless things He did for me during this period.

I am deeply indebted to all people who helped me directly or

indirectly to come out with this work. I would like to thank
my supervisor, Dr. BACKE ITOE for the correction and
organization of this work.

I equally thank Dr. Adams for all the moral support she gave
to me.

Marius Niba IKOME NJINYAM 6

Abstract

The main objective of the study is to critically examine and analyze the role of commercial
banks on economic growth in Cameroon The study portrays how loans and credit affect
the GDP and consequently the level of economic growth of Cameroon

The data for this study was collected through secondary sources. Secondary sources included
a number of text books and annual reports. The data was analyzed through quantitative
analysis using descriptive statistics.

At the end of this study, it was revealed that Commercial banks have a positive impact on the
Economic growth Cameroon. It was also realized that Domestic credits from commercial
banks have a directly proportional relationship.

The recommendations were posted on the fact that, government should encourage the saving
culture of Cameroonians, increase the level of deregulation in the banking sector and also
reduce the tax burden on commercial banks;

Marius Niba IKOME NJINYAM 7

TABLE OF CONTENTS

1 CHAPTER ONE - Introduction .................................................................................................................... 10

1.1 Overview on Cameroon’s Economy................................................................................................. 10

1.2 Statement of Research Problem........................................................................................................ 12

1.3 Purpose of Study ..................................................................................................................................... 13

1.4 Hypothesis of the Study ....................................................................................................................... 13

1.5 Relevance of Study ................................................................................................................................. 13

2 CHAPTER TWO – Literature of Economic Growth and Commercial Banks ............................. 15

2.1 Definition of Concept and Terms ...................................................................................................... 15

2.1.1 Economic Growth .......................................................................................................................... 15

2.1.2 Commercial Banks ......................................................................................................................... 16

2.1.3 Loans (Domestic Credit) ............................................................................................................. 17

2.1.4 GDP (Gross Domestic Product) ................................................................................................ 17

2.2 Empirical Literature on Economic Growth .................................................................................. 17

2.3 Theories on Economic Growth .......................................................................................................... 18

2.3.1 WW Rostow 5 Stages of Economic Growth ......................................................................... 19

2.3.2 Neoclassical Model ........................................................................................................................ 20

2.3.3 Endogenous Growth Theory...................................................................................................... 20

2.3.4 Keynesian Theory .......................................................................................................................... 20

3 CHAPTER THREE - Research Methodology .......................................................................................... 22

3.1 Overview on Cameroon’s Banking Sector ..................................................................................... 22

3.2 Research Procedure............................................................................................................................... 23

Marius Niba IKOME NJINYAM 8

 3.3 Method of Data Analysis and Investigation .................................................................................. 23

3.4 Model Specification ................................................................................................................................ 23

3.5 Estimation Procedure ........................................................................................................................... 24

3.6 Techniques for Evaluation Results .................................................................................................. 24

3.7 Data Collection and Sources ............................................................................................................... 25

4 CHAPTER FOUR – Results: Data Presentation, Analysis and Interpretation of Findings ... 26

4.1 Introduction .............................................................................................................................................. 26

4.2 Data Presentation ................................................................................................................................... 26

4.3 Data Analysis ............................................................................................................................................ 28

4.3.1 Descriptive........................................................................................................................................ 28

4.3.2 Inferential Data Analysis ............................................................................................................. 28

4.4 Hypothesis Testing and Interpretation of Results ..................................................................... 30

4.4.1 Hypothesis Testing ........................................................................................................................ 30

4.4.2 Hypothesis Testing Using T-test .............................................................................................. 30

4.4.3 Decision Rule ................................................................................................................................... 30

4.4.4 Hypothesis Testing Using Coefficient of Correlation (r)................................................. 31

4.4.5 Interpretations of Results........................................................................................................... 31

4.4.6 Interpreting the Result using the ordinary least square (OLS) method ................... 31

5 CHAPTER FIVE - Conclusion, Recommendation and Suggestion for Further Research ..... 33

5.1 Summary of Study .................................................................................................................................. 33

5.2 Conclusion ................................................................................................................................................. 33

5.3 Recommendation.................................................................................................................................... 34

5.4 Suggestions for further Research ..................................................................................................... 34

Marius Niba IKOME NJINYAM 9

1 CHAPTER ONE - INTRODUCTION

1.1 OVERVIEW ON CAMEROON’S ECONOMY

Cameroon being a sub-Saharan country is located in central Africa and lies between longitude
80 and 160 of the Green Wish meridian and between latitude 20 and 13 0North and South of the
equator (Njabe Roland, 2000 _. Cameroon is triangular in shape and is bounded to the west by
Nigeria, to the East by Central African Republic, to the North by Chad Republic and to the
South by the Republic of equatorial Guinea and the Atlantic Ocean.

Cameroon has a land surface area of 47400km with a population of approximately 20 million
people. Cameroon has 10 regions with the capital Yaoundé. Each region is headed by a
governor. Cameroon has 240 ethnic groups and 24 languages (linguistic groups_. Prominent
tribes include the Fulbes in the North, the grass landers of the West, the Pygmies to the East
and the Bettis to the South.

However, from the economic standpoint, Cameroon uses the FCFA as it sole currency. It is
dependent on its primary agricultural products for exports. Some of these products include
crude oil, petroleum, coffee, cocoa, rubber, banana and timber. Her primary imports include
machinery, and transportation equipments, iron and steel. Between 1961 and 1981, there was
positive balance of payment (BOP) for 8 years and negative BOP for 12 year. Also from an
economic point of view, on the 12th of January 1994 Cameroon devalued her currency and this
made Cameroon’s economic indicators to have positive values. This was due to an increase
export and a decrease in import brought by changes in the parity of the FCFA to the French
France.

Cameroon’s economic growth for the first 20 years of independence turned around 7% with
the liquidation and restructuring of most banks, coupled with the liquidation and
restructuring of most banks coupled with the changes in the motutary and fiscal policies,
internal and external constituents related to prudential rules, sound banking management,
Cameroon’s sources of fiancé for the economy became slem and squeezed. Today Cameroons
economic growth stands at 2.8%.

Formal banking in Cameroon is very recent, in fact less than 50 years old and its origin is
traced back to the late era of colonization. The first bank in Cameroon was established way
before independence. However, before the advent of modern banks small societies had some
sort of banking carried out through in a primitive manner. Thrift and loan societies were
Marius Niba IKOME NJINYAM 10
being regulated by the customs and tradition. Treasurers of such societies played all the
important functions of bank and bankers.

However the Cameroonian banking industry has evolved from the local practices to modern
banking. Cameroon is a member of BEAC (Bank of Central African States) and also a member
of CEMAC (Central African Economic and Monetary Community) the banking industry is
governed by laws, enactments, ministerial orders and presidential decrees. The banking
system is regulated by bodies which include CONAC, NCC, APECAM, BEAC and MINEFI. The
advent of modern banking has seen the collapse, liquidation and Recapitalization of certain
banks such as the liquidation of bank meridian BIAO Cameroon (BMBC) in 1996 and credit
Agricole du Cameroon (CAC) in 1997. The incorporation of commercial bank of Cameroon and
the Acquisition of Amity Bank by Atlantic Bank and the Progression National Financial Credit
Company )NFCC) to National Financial Credit Bank (NFC Bank) in 2006. However with the
prevailing prudential and stricter regulations

There are basically 12 commercial banks operating in Cameroon today and they include

 Societé general des Banque au Cameroon (SGBC)

 SCB-Credit Lyonais du Cameroon (SCB-CL)

 Standard chartered bank of Cameroon(SCBC)

 Atlantic Bank

 Citibank

 Ecobank

 Union Bank of Cameroon (UBC)

 Afriland first Bank PLC

 National Financial Credit Bank (NFC Bank)

 Union Bank of Africa

 Banque International du Cameroon pour l’epagne et le credit (BICEC)

 Commercial bank of Cameroon

Apart from Atlantic bank PLC, Afriland First bank, Union bank of Cameroon, Ecobank, Citi
bank, Standard Chartered Bank, NFC bank and Union bank of Africa the other banks have
Marius Niba IKOME NJINYAM 11
government share-holdings of between 35% to 83% and are heavily influenced by the later.
Commercial banks in Cameroon carry out the traditional bank functions.

Lending short term and specializing in short term self liquidating trade finance. Long term
loan are being given by the central bank. The restructuring process of the banking sector was
completed in January 2000 when the last state-owned bank was sold out.

1.2 STATEMENT OF RESEARCH PROBLEM

According to zhufany, (2004, p.96) commercial banks refers to a profit making privately
owned financial institution which receives deposits from the general public, safeguards them
and makes loans to the public. Some other functions of commercial banks include; providing
investment advices to the public, gives advice to the customers on financial markets, provides
foreign exchange services and the issuing of travel’s cheque to customers. They also act as
guarantors i.e. standing behind their customers to pay off their debt, when they are unable to
pay, they carry many other roles such as agency role, payment role, policy role and risk
management role. This services pronded by commercial banks goes a long way to raise
income levels and standards of living of citizens.

In 1980s, Cameroon faced a serious economic crisis which was very detrimental or every
sector of the economy of which commercial banks were involved. Various conditions
combined together to lead to this crisis. The government admitted that the crisis was caused
by the sudden drop in the prices of exports of goods and services in the international market.
The most prominent outcome was the hike in the prices rates of daily commodities. In
response to this severe economic crisis, the Cameroonian government initiated a reform
programe that focused on re-organizing the public finance system, liberalizing foreign trade.
This led to economic recovery in the late 1990s still to address the economic crisis. The SAP
was introduced in Cameroon which meant that some server economic policy changes with the
leading one being the dainties to be a facilitator of this dainties like in most countries, popular
opinion holds that the SAP has failed because of the level of poverty increased dramatically
during the late 1980s and 1990s.

The admission of HIPC debt reduction imitative in April 2006 brought Cameroon to an
important development goal. With the attainment of the HIPC completion point, Cameroon
exports a lump sum of financial resources of more than 1400billion FCFA. These funds are
free and are out to achieve a sustainable improvement in living condition as well as significant
reduction in poverty.

Marius Niba IKOME NJINYAM 12

However, this research work is out to answer the following research question:

To what extend does loans (credit) provided by commercial banks affect economic growth (GDP)
in Cameroon.

1.3 PURPOSE OF STUDY

The main objective of this work is to assess the role played by commercial banks on the
economic growth in Cameroon. Specific objectives include:

 To identify the problems associated with economic growth.

 Examine the effect of loans (domestic credit) provided by commercial banks on the
GDP.

 Make necessary recommendations based on the findings.

1.4 HYPOTHESIS OF THE STUDY

To better verify the above objectives of this study, the following hypothesis are vital.

H0: Domestic Credit provided by commercial banks has a significant impact on the GDP;

H1: Domestic Credit provided by the commercial banks have significant impact on the GDP

1.5 RELEVANCE OF STUDY

This work is significant to three groups of people which are; Government, commercial banks
and to researchers.

This work is important to the government in that it will help the government to develop good
developmental strategies concerning economic growth and commercial banks.

Moreover, this work will equally be important to commercial banks due to the fact that it will
help commercial banks to improve on their services offered to the nation and to implement
advanced measures so as to enhance the growth of the economy.

Finally, this work is also important to the researcher.

 Firstly, it will serve as a prerequisite for the award of a certificate from the university.

Marius Niba IKOME NJINYAM 13

  Secondly, it will help build the researchers knowledge, giving a greater understanding
of the performance of the economy and the role played by commercial banks

 Finally, this work will remain to be the background work to which forth coming
students and researchers will be able to review some ideal if necessary.

Marius Niba IKOME NJINYAM 14

2 CHAPTER TWO – LITERATURE OF ECONOMIC GROWTH AND
COMMERCIAL BANKS
This chapter is divided into three parts. The first part deals with conceptual frame work.
Hence concepts\terms relating to topic will be defined. The second part deals with the
theoretical frame work. Under this section, theories relating to economic growth will be
discussed. The last part deals with empirical literature and works done by other researchers
relating to this work will be discussed.

2.1 DEFINITION OF CONCEPT AND TERMS

This deals with the definition of concepts \terms relating to this work. They include;
Economic Growth, GDP, Commercial Banks, Loans (credit).

2.1.1 ECONOMIC GROWTH

According to Kael.E et al (1994), Economic growth refers to an increase in the output of an

economy. According to them, economic growth occurs either when Society acquires more
resources Society discovers ways of using the available resources more efficiently

According to J.L Hanson (Economic and commercial Dictionary) . Economic growth refers to
an increase in the per capita income or increase in the GDP. In the recent literature, the term
refers to sustained increase in the countries output of goods and services to be more precise
the product per capita output is generally measured in terms of GNP. Economic growth is
primarily derive by improvement in the production which involves producing more goods
and services with the same inputs of labor, capital, energy and materials.

Compbell. R .et al (1993), defines economic growth as the outward shift of the production
possibility frontier (PPF), here PPF refers to a curve that shows the maximum combination of
goods can be produced using the available resources at a particular time. This is illustrated
below:

Figure 1: Economic Growth

Marius Niba IKOME NJINYAM 15

 y

Growth path

P1

P0

0 P0 P1 X
Source: Karl E, et al, (1994, p 235), principles of Economics, 3rd edition from the graph above,
two goods are produced i.e. x and y. economic growth according to Compbell et al is achieved
when the country’s PPF moves from P0P0 to P1 P1

2.1.2 COMMERCIAL BANKS

According to the Economics and Commercial Dictionary by J.L Hanson commercial banks can
be defined as an institution which accepts deposits, makes business loans and offers related
services. They operate a variety of deposit accounts such as checking accounts, saving and
time deposit accounts. This is an institution whose main objective is profit maximization.

However Zhufanyi, commercial banks refers to profit making privately owned financial
institution which receives deposits from the general public and safeguards them and makes
loans. Zhufanyi (2004, p 169). According to Zhufanyi, commercial banks perform three main
functions which include, receiving deposits, lending and agents of payment.

Receiving deposits, this is to the basic function of commercial banks deposits are divided into
two accounts; current and deposit account money deposited in a current account can be
withdrawn at any time by the use of a cheque. Money in a deposit account on the other hand
can not be withdrawn at anytime. Notification is required before withdrawal is made.

Lending is the most profitable function of a commercial bank. Banks lend part of the deposits
they receive to the public on interest. Lending is made in three ways, direct loan, and
overdraft and discounting bills.

Marius Niba IKOME NJINYAM 16

Banks also act as agents of payment in that, banks collect and transfer money through out the
world through the cheque system. Commercial banks settle indebtedness on behalf of their
customers such as settling bills, payment to employees and cashing of cheques.

Banks also act as guarantors by standing behind their customers to pay off customers’ debt,
when they are unable to pay. They also act on behalf the customers to manage and protect
their properties or issue and redeem their securities.

The risk management role of commercial banks means that they assist the customers in
preparing financially for the risk of lost property and persons. Other roles include policy role,
agency just to name a few.

2.1.3 LOANS (DOMESTIC CREDIT)

According to J.L Hans (1980) loans refers to borrowing of a sum of money at an agreed rate of
interest, usually for specified period of time by the government, institution, a business form or
an individual.

2.1.4 GDP (GROSS DOMESTIC PRODUCT)

Ray.E et al (1994), defines GDP as the total market value of all final goods and services
product within a given period by factors of production located with a country.

GDP= C+I+G+(X-M)

Where:

 C=Consumption

 I=Investment

 G=Government Expenditure

 X=Exports and

 M=Imports

2.2 EMPIRICAL LITERATURE ON ECONOMIC GROWTH

In recent years a good number of people have written about economic growth and financial
institutions of which commercial banks are inclusive. This research focuses on the three

Marius Niba IKOME NJINYAM 17

selected studies in order to survey a representative sample of literature issue relating to
economic growth.

Neba Cynthia, (2008), carried out a study on assessing the role of micro finance institutions
(MFIs) in the growth of Cameroon’s economy. One of the main reasons of this study was to
help government and other agents involved in the growth of the economy to develop a good
developmental strategy and policies. The work was also intended to help micro financial
institutions to improve on their services or to implement advanced measures so as to enhance
economic growth in the economy. She made use of time-series experiment design in the
collected data on two variables, loans provided by micro finance institutions and GDP per
capital from 1996 to 2007. Loans provided by MFI were taken to be the independent variable
while GDP was the dependent variable.

Using both descriptive method of data analysis median, standard deviation and inferential
tools of data analysis such as the F-test, R2, t-test and Durbin-Watson statistics to test her null
hypothesis which was ‘there is no relationship between loans given to the economy by MFIs
and the GDP per capital’ she concluded that credit granted by MFIs have a significant effect on
the growth of the GDP per capita, hence she rejected her null hypothesis.

According to NGU (2007), banks in Cameroon have a positive and significant contribution to
the growth and development of the economy. Firstly credit yield interest for the banks and
secondly the banks have provided employment, increase government revenue through the
taxes they pay.

Nkeng (1960) writing on financial institutions in general stated that they have not been doing
enough to sensitive their customers and would be customers on what is required of them to
fully benefit from the facilities offered them. He proposed the expansion of the agricultural
sectors of the economy which will in turn promote economic growth and development.

2.3 THEORIES ON ECONOMIC GROWTH

Under this section, a good number of theories will be reviewed concerning economic growth.
These theories include;

 WW Rostow 5 Stages of Economic Development

 Neoclassical Model

 Endogenous Growth Model

Marius Niba IKOME NJINYAM 18

  Keynessian Theories

2.3.1 WW ROSTOW 5 STAGES OF ECONOMIC GROWTH

According to Ray, et al (1997) WW Rostow postulated that for a country to achieve economic
growth, it must pass through five stages which includes

 The Traditional Society Stage

 The Pre- condition for the Take Off Stage

 The Take Off Stage

 The Stage of High Mass Consumption

WW Rostow said it is possible to identify all societies in their modern stage as lying within
one of the five stages of economic growth. The traditional society stage, this stage refers to a
relatively primitive society which is derived of division of labour, specialization and exchange.
It therefore a purely subsistence economy involved mainly in Agriculture . This stage appears
to be prominent in Cameroon even up to the 21st century. Hence the country is referred to as
an agricultural economy since this sector produces a relatively high proportion of the GDP.

The precondition for the take off stage: This stage marks a period of transformation in which
the traditional systems are overcome and the economy is made capable of exploiting the fruit
of modern science. Here the agricultural sector which is considered as a spring board for
development is highly developed.

Take-off stage; at this stage the resistances to steady growth are finally discarded and the
economy begins to generate its own investment. Technology is equally high enough to allow
for self sustaining.

The drive to maturity: at this stage the economy becomes more sophisticated, more industries
are created, technology is highly developed and there is a greater export of goods and services
against reduction in imports.

Moreso, the stage of high mass consumption is characterized by a population of full affluence;
many durable consumer goods available. At this stage, the economy is not faced with the
problem of what to produce but of how to consume what has been produced.

Marius Niba IKOME NJINYAM 19

2.3.2 NEOCLASSICAL MODEL

According to Compbell R. et al (1993), the neoclassical growth model was developed

principally by Robert Solow. This model explains economic growth by virtue of capital
accumulation, population growth; Solow makes use of two main components, the long run
capital output ratio and per capital growth curve.

According to the first component, the long run capital output ratio, if both output and capital
are growing at the same rate. Whatever that rate might be, the capital output ratio will remain
the same. The long run equilibrium capital- output ratio is increased by higher saving rate and
decreased by a higher growth rate of output. If output growth and saving rate are stable then
so will be the long run capital ratio. The second component of the neoclassical growth model
of Solow is per capita growth curve. These carve shows how the growth rate in per capital
GDP depends on the capital output ratio holding other factors constant.

2.3.3 ENDOGENOUS GROWTH THEORY

According to Ray et al (1997), this theory was postulated by Joseph Schumpeter, reason why
it was called the Neo-Schumpeterian model. The neoclassical model of Solow did not explain
the rate of technical progress. Solow took the rate of technical progress to be something that
“just happens”. In contrast to Solow, Schumpeter believed that insatiable human wants more
and better products therefore research and development are carried out to make a profit on
new and better products hence resulting to economic growth. Unlike neoclassical growth
theory, in the endogenous growth theory, a higher saving rate can cause greater long run
growth through stimulating more invention. If for example companies more in high powered
computers, new discoveries will become relatively cheaper and the rate of technological
progress will increase.

Schumpeterian view was supported by an economic historian, Jacob Schookler, who found out
that profit was the prime motive in the historical record of important inventions in petroleum
refining, railway and farming.

2.3.4 KEYNESIAN THEORY

According to Karl et al (1994), the Keynesian growth rate model and theories of Sir Ray
Harrod of Britain and Evsey Domar in the United States dominated the economic literature for
a generation after world war 11. According to the early model of Harrod, economic growth
requires three main variables which include;

Marius Niba IKOME NJINYAM 20

  The economy’s saving rate (percentage of national income devoted in saving)

 Capital and output ratio (the amount of additional capital model for one unit of output
increase)

 Growth rate

According to Harrod, economic

growth rate = Saving Rate/Capital output ratio

Capital output ratio refers to the value of capital used in the production divided the value of
output produced per time period.

Marius Niba IKOME NJINYAM 21

3 CHAPTER THREE - RESEARCH METHODOLOGY

3.1 OVERVIEW ON CAMEROON’S BANKING SECTOR

The banking system of Cameroon ids dominated by commercial bank handling traditional
banking functions; lending short term and specializing in short term self liquidating trade
financing. The banking system consist of 13 commercial banks ( of which the six largest are
foreign owned, with three holding more than 50 percent of the sector assets and accounting
for more than 55 percent of deposit) and two government-owned specialized financial
institutions (CAMPOST and CFC) (IMF country Report No 09/51, Feb 2009). Bank deals
mainly with large companies and other reliable counterparts. High credit risk together with
the lack of long term deposits has resulted in limited lending activities to small and medium
sized enterprises (SMEs) and in the predominance of short term lending. Except for one large
bank lending to agriculture and housing is limited (IMF country Report No. 09/51, Feb 2009),
the banking sector of Cameroon is the most heavily undercapitalized and if they require
provisions were made would reflect huge negative net worth. There is no restriction on
ownership of banks in Cameroon (1985 Ordinance). It therefore gives opportunity for the
existence of 100% privately owned banks, even with the possibility of having off shore offices.
A new investment code also encouraged investment in the banking sector to both natural
person and corporate bodies of Cameroon or foreign nationalities irrespective of their place
of residence. Foreigners are also allowed to hire and fire labor in accordance with the social
insurance and labor legislation in place (Ordinance No 90/7, November 1990).

Due to the dynamics of the Cameroon’s banking legislative the system today is characterized
the followings;

There are 12 folly operational commercial banks in Cameroon with total assets of over 1,600
billion franc (2008 investment climate statement –Cameroon), six being expatriate bank and
two government owned and four owned by indigenes.

The indigenous banks include Union Bank of Cameroon (UBC), Commercial Bank of Cameroon
(CBC) and National Financial Credit Bank (NFC Bank) which is privately owned the rest have
government participation of between 35% to 85% and heavily influenced by the above.

The expatriate bank include; Eco Bank, Standard Chartered Bank, United Bank of Africa (UBA)
Société Generale des Banque au Cameroun (SGBC) Citibank, Afriland First Bank.

Marius Niba IKOME NJINYAM 22

Government banks include; SCB-Credit Agncole du Cameroun and Banque Internationale du
Cameroun pour L’epargne et le Credit (BICEC). This banks in Cameroon dealt mainly with
large companies and other reliable counterparts, but of recent the market for individual has
gained grounds, that is the commercial banks are looking at the possibility of lending to
individuals and SMEs are increasing ( IMF Country Report No.09/51, Feb. 2009).

3.2 RESEARCH PROCEDURE

The research designed used for this research will be time-series experimental assigned. This
research will cover a period of 17years, from 1990 to 2006. Under this 17 years time period,
data will be collected for two variables which are domestic credit provided by commercial
banks to the economy and GDP.

3.3 METHOD OF DATA ANALYSIS AND INVESTIGATION

The research will involve the use of regression analysis as a method of analyzing the data
collected. This choice of analysis is because of two main reasons; firstly it will help develop a
regression model which demonstrates the amount of domestic credit given to the economy by
commercial banks on charges in GDP. Secondly regression analysis is important because it
enable us to qualify and measures the strength of the relationship between domestic credit
and GDP.

In addition, the research will equally entail the use of descriptive method of data analysis to
supplement the regression analysis. These descriptive methods of data analysis will include
mean, standard deviation, variance and covariance.

3.4 MODEL SPECIFICATION

The simple regression model is most appropriate for the researcher to establish the
relationship between domestic credit and growth of the GDP. This relationship is stated in the
equation below;

y  F X 

Where:

 y = GDP

Marius Niba IKOME NJINYAM 23

  X = Domestic Credit provided by commercial banks to the economy

The equation above assumes a linear relationship between Y and X

3.5 ESTIMATION PROCEDURE

In estimating the parameters of the model specified, the ordinary least square method (OIS)
will be used. The least square estimation line of Y on X is given as

Y  B0  B1 X

Where:

 B0 is the intercept and

 B1 is the gradient or slope.

3.6 TECHNIQUES FOR EVALUATION RESULTS

In evaluating Results, the goodness of fit will be seen under the coefficient of correlation ®. R
will tell us how the sample regression function fits the data that is it will determine the
relationship between domestic credit and GDP.

The coefficient of correlation (R) will be computed using the product moment formulae which
is

EXY  NXY
R
NxY
Where:

 N =Number of pairs
 x =mean domestic credit
 Y=mean of GDP
 X= standard deviation of domestic credit on GDP, the t-test will be used.
The formulae that will be used to calculate the T – value will be

N  2
T
(1  r 2 )

Where:
Marius Niba IKOME NJINYAM 24
  N-2 is the degree of freedom
 r = value of the coefficient of correlation,
 N = total number of cases.

3.7 DATA COLLECTION AND SOURCES

Data to be used in this study will be collected from secondary sources. This is because it saves
time, manpower and resources the seconded data to be given to the economy by commercial
bank and GDP. The data will be collected from external sources such as official statistics
supplied by the central statistic office, International organization reports such as the World
Bank, International Monetary Fund (IMF) and African Development Bank.

Marius Niba IKOME NJINYAM 25

4 CHAPTER FOUR – RESULTS: DATA PRESENTATION, ANALYSIS
AND INTERPRETATION OF FINDINGS

4.1 INTRODUCTION
This chapter deals with the presentation of data, its analysis, testing of hypothesis and
interpretation of findings. Data was collected on two variables which are domestic credit and
GDP. This data was collected for a period of 17 years (1990-2006).

4.2 DATA PRESENTATION

This sector is actually seen as data organization. Data collected on two variables are GDP and
domestic credit will be presented using tables and line graph

A table which is a dimensional representation of data will be used to represent the statistical
information. This table to be used here will assemble information on GDP and domestic credit
from 1990 to 2006 in such a way that, the relationship between GDP and domestic credit will
be seen and understood at a glance.

Table 1 - CAMEROON GDP AT CURRENT PRICE AND DOMESTIC CREDIT FROM 1990-2006

Years Domestic Credit GDP in Current Prices

( billions FCFA) ( billions FCFA)
1990 1044.8 3896.0
1991 1264.6 3727.0
1992 831.9 3680.3
1993 805.2 3591.0
1994 797.8 4004.8
1995 794.3 4529.3
1996 762.8 4883.8
1997 806.0 5324.8
1998 881.2 5797.9
1999 959.5 6170.6
2000 952.0 6162.4
2001 1033.8 2061.4

Marius Niba IKOME NJINYAM 26

2002 1079.6 7583.0
2003 1158.5 7975.6
2004 1157.0 8333.9
2005 1101.1 8959.3
2006 923.0 9581.1
Source, selected statistics on African countries, 2007 African Development Bank, page 104, 105

The line graph will be used to show the trend of GDP and domestic credit from 1990 to 2006.
The 17 years under consideration is shown on the X-axis while the GDP and domestic credit is
plotted on the Y-axis.

Figure 1 - Trend of GDP and credit

Source: Researcher Analysis

From the graph it can be seen that GDP and domestic credit have a very small positive
relationship that is there is a great variance between these two variables. From 1990-2006,
domestic credit has been fairly constant and has not exceeded 2000 billion FCFA. GDP on the
other hand has been raging from 1990 to 2006 between 2000 billion FCFA and 10.000 billions
FCFA. From 1990 to 1993, GDP have been below 4000billion FCFA. This low GDP can be
explained by the early 1990s economic and political crisis. From 1993 to 2006, the economy
witnessed an increase in the GDP from 3591 billion to 6612.3 billion FCFA. In 2001 GDP till
drastically to 2061.4 billion FCFA.

Marius Niba IKOME NJINYAM 27

In response to the economic and political crisis of the early 1990s, the government initiated a
reform program that focused on reorganizing the public finance system. Liberalizing foreign
trade and abolishing the national controlled pricing system in the late 1990s. These measures
began to result in an economic recovers that led to the continuous increase in GDP from 2002
to 2006. This GDP in 2002 was 7583 billion FCFA while in 2006; GDP was 9581.1 billion FCFA.

4.3 DATA ANALYSIS

As mentioned in chapter three data will be analyzed using both descriptive and inferential
tools such as means, standard denation, median for descriptive and coefficient of correlation
® and t-test for inferential.

4.3.1 DESCRIPTIVE

Table 2 - Summary of Descriptive Statistics -

GDP Domestic Credit

Mean 5688 961
Median 5324.8 952
SD 2084.8 154.8
Maximum 9581.1 1264.6
Minimum 2061.4 762.8
Skewness 0.3179 0.3915
Kurtosis -0.947 -1.012
observation 17 17

4.3.2 INFERENTIAL DATA ANALYSIS

Inferential statistics, unlike those used for descriptive research are tools for analyzing data in
a fashion that will address the research question or hypothesis, inferential statistics to be
used here will be measure of relationship.

To measure the relationship between domestic credit and GDP, coefficient of correlation ®
and test (t) will be used.

R
 xy  Nxy
N  Y

Where:
Marius Niba IKOME NJINYAM 28
  N = the number of pairs (17)

 Y = mean of GDP =
y =
967111
= 5688.9
N 17

 X = mean of domestic credit =

X =
16350
= 961.8
N 17

 X = standard deviation of GDP =  X  X  = 2184.8

2
1

 Y = standard deviation of credit =  y 1  y  =154.8

2

 R = 0.32.

4.3.3 T-Test

The T-test formula (Olumolonge 1984) used here to calculate t-value for testing significant
differences of relationship between two variables in this research, it will be between domestic
credit and GDP.

N  2
t* 
1  r 
r

Where:

 N-2 degree of freedom

 R = the value of the correlation of coefficient

 N = total number of cases

 t* = calculated t-value

N  2
t* 
1  r 
r

34  2
t* 
1  0.3238 
r

Marius Niba IKOME NJINYAM 29

t *  2.045

Table 3 - Summary of Inferential statistic

r R B1 B0 t*

Values 0.32 0.10 4.569 1294 2.045

4.4 HYPOTHESIS TESTING AND INTERPRETATION OF RESULTS

4.4.1 HYPOTHESIS TESTING

Our null hypothesis which states that domestic credit provided by commercial banks does not
have a significant effect on the GDP, will be tested using the t*- test and coefficient of
correlation ® calculated above

4.4.2 HYPOTHESIS TESTING USING T-TEST

Calculated t* value = 2.0456 using 5 % level of significance with a ( 17+ 17) -2 degree of
freedom and a two – tail test, the t – value from the t – test table is 0.337.

Figure 2: normal distribution curve showing t – test.

95%

2.5%

2.5%

-2.04 -0.337 0.337 2.04

4.4.3 DECISION RULE

Marius Niba IKOME NJINYAM 30

Since our source calculated t* value ( 2.046 is greater than the t – value from the t distribution
table ( 0.337), we therefore reject the null hypothesis that states that “ domestic credit
provided by commercial banks does not have a significant effect on GDP and therefore
concluded that domestic credit provided by commercial banks have a significant effect on the
GDP.

Hypothesis testing using coefficient of correlation (r) from the analysis of the data above, the
coefficient of correlation (r) is 0.32 since r is positive, we therefore reject the null hypothesis
which states that domestic credit provided by commercial bank does not have a significant
effect on the GDP and therefore conclude that domestic credit provided by commercial banks
have a significant effect on the GDP.

4.4.4 HYPOTHESIS TESTING USING COEFFICIENT OF CORRELATION (R)

From the analysis of data above, the coefficient of correlation (r) is 0.32. Since (r) is positive,
we therefore reject the null hypothesis which states that “domestic credit provided by
commercial banks does not have a significant effect on the GDP” and therefore conclude that
domestic credit provided commercial banks have a significant effect on GDP.

4.4.5 INTERPRETATIONS OF RESULTS

The (r) of 0.32 implies that there is a low correlation relationship between domestic credit
provided by commercial banks to the economy and GDP. This implies that about 32% of
changes in the level of GDO are explained by changes in the amount of domestic credit that is,
the sample regression function feets that data by 32% and the remaining 68% is accounted
for by other factors which influence GDP a such as export, import and consumption.

4.4.6 INTERPRETING THE RESULT USING THE ORDINARY LEAST SQUARE (OLS) METHOD

Line Y  1214 / 2  4.569 X , B1 which is the slope of the line is 4.569 implying that there is a
positive relationship between GDP and domestic credit.

Since many macroeconomic variables such as consumption, investment, government

expenditures, exports and imports do affect the GDP , that is GDP = C+I+G+(X-M), GDP will
turn to fall if those variables are negative irrespective of an increase in domestic credit.

The significance of loans in influencing GDP is mostly based on the principles of lending.
Therefore giving out loans to customers, the banker evaluates the credit worthiness of the
customer that is the amount of a loan, the collateral security and the nature of position,
Marius Niba IKOME NJINYAM 31
character of the borrower (honest, loyalty capability and capacity) and the overall nature of
the business. If the credit rating of the customer is not well evaluated and the loans granted,
the end result is that the bank will be facing credit risk in future. This can result to a fall in
income and also a fall in GDP of the country.

In addition, an increase in the amount of credit to boost private investment could lead to a fall
in GDP due to some main economic factors such as inflation. This works in the sense that high
levels of inflation in other words called high prices would increase the cost of production and
thus the performance of the private sector go through reduced profits. But however this result
is not entirely in conformity with the economic theory which expects investment to increase
with increase in the amount of credit.

Marius Niba IKOME NJINYAM 32

5 CHAPTER FIVE - CONCLUSION, RECOMMENDATION AND
SUGGESTION FOR FURTHER RESEARCH

5.1 SUMMARY OF STUDY

This research work carried out on this topic assessing the role of commercial banks on
economic growth in Cameroon (1990-2006) is discussed under four chapters. In chapter one
we started with stating the research problem, define the objectives of the study and went
further to state the working hypotheses that domestic credit provided by commercial banks
does not have a significant effect on GDP.

In chapter two which is captioned literature review focused on definition of concepts/terms,

empirical literature and theoretical frame work. Under the definition of concept the following
were defined loans (domestic credit), commercial banks, economic growth and GDP. Talking
of empirical literature the work of Neba Cythia on assessing the role of micro financing
institutions on the growth of the Cameroonian economy was reviewed. The work of Neba
(2007) was equally reviewed. Talking of theoretical framework, four theories concerning
economic growth were reviewed. They included WW Rostow 5 stages of economic growth,
neoclassic model of Robert Solow, endogenous growth theory by Joseph Schumpeter and the
Keynesian theories of Sir Ray Harrod.

Chapter three focused on the methodology used in carrying out the research study. We
started with research procedure (time series design), went ahead to specify the model used in
the study. A sample regression analysis was used. Various statistical test of significance such
as t-test and coefficient of correlation ® was used to best our hypotheses.

Finally, we focused on the results obtained in chapter four. Here I made use of the statistical
tools (r and t-test) mentioned above to analyze data collected on the GDP and domestic credit
to test our working hypotheses. Our coefficient of correlation was 0.32 while our t-value was
2.0456. Using our Rand t-test we rejected the hypothesis which stated “domestic credit does
not have a significance effect on the GDP “in this chapter we went further to state the
implication of our test result.

5.2 CONCLUSION

Marius Niba IKOME NJINYAM 33

The main objective of this study is to find out the role played by commercial banks on the
economic growth in Cameroon and one of the specific objectives was to find the extent to
which loans given out by commercial banks to the economy affected the GDP. In the course of
assessment, we sorted out the variable as loans (domestic credit) granted by commercial
banks as a key variable affecting the growth of the GDP. We therefore conclude that domestic
credit granted by commercial banks has a significant effect on the growth of GDP.

5.3 RECOMMENDATION
After carrying out a study on the role of loans given by commercial banks on the GDP, the
research can then make the following recommendations. Commercial banks should focus
their lending strategies towards enhancing of small and medium sized enterprises and the
standards of living. To do this there is the need to implement good supervising policies so as
to ensure that loans collected should be used for the purpose for which they were supposed.

 Government should encourage the creation of more commercial banks since they have
a positive effect on economic growth.

 Improvement to the asses to financial services especially loans (domestic credit).

5.4 SUGGESTIONS FOR FURTHER RESEARCH

Since this work focused on the role of commercial banks on economic growth, a further
research can be conducted on the role of financial system as a whole on economic growth, in
this case information will not only be collected on commercial bank but also on other financial
institutions such as micro finance institutions, insurance companies, money market
institutions and capital market institutions.

Again research can still be done on the same topic that is assessing role of commercial bank
on economic growth. However, instead of relying two variables that is GDP and domestic
credit, the research can rely on more variables such as

 Amount of money these financial institutions (commercial banks) invest in the

acquisition of financial assets such as bonds and shares.

 Domestic credit

 Employment figures of the commercial banks

Marius Niba IKOME NJINYAM 34

  And the overall deposits received by these commercial banks

Marius Niba IKOME NJINYAM 35

TABLE OF FIGURES
TABLE 1 - CAMEROON GDP AT CURRENT PRICE AND DOMESTIC CREDIT FROM 1990-2006 ............................................... 26
TABLE 2 - SUMMARY OF DESCRIPTIVE STATISTICS -....................................................................................................................... 28
TABLE 3 - SUMMARY OF INFERENTIAL STATISTIC .......................................................................................................................... 30

Marius Niba IKOME NJINYAM 36

 BIBLIOGRAPHY
1. Campbell R, et al, (1993) Economic Principles Problem and Policies 12th edition, Mc
Graw-Hill Inc.

2. J.L Hanson, (1980) Dictionary of Commerce and Finance

3. Karl E, et al, (1994), Principles of Economics, 3rd edition, Prentice-hall Inc

4. Ray, et al, (1994) Principles of Macro Economic 6th edition, Addison Wesley Education
Publisher

5. Zhufanyi (2004) Essentials of Economics

6. Neba Cynthia (2008) Assessing the role of Micro Finance Institutions on Economic
Growth in Cameroon. Unpublished.

7. Ngu A, An Examination of Economic Importance and Development Impact of Banks in

Cameroon. Unpublished

8. African Development Bank, (2007) Special Selected Statistics on African Countries

9. Nico Halle and Co. Lawfirm, (2006) Cameroon: Cameroon Chamber of Commerce
Industry and Mines

Marius Niba IKOME NJINYAM 37

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