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Bank Portfolio Structure and Economic Absorption Theory of Economic Development: A Theoretical Proposition

Author

Listed:
  • Emmanuel I. MICHAEL

    (University of Uyo, Nigeria)

  • Joseph Michael ESSIEN

    (Ken Saro Wiwa Polytechnic, Nigeria)

  • Uduak B. UBOM

    (University of Uyo, Nigeria)

Abstract

The focus of this article was on theoretical proposition of Bank Portfolio Structure and Economic Absorption Theory of economic development. Specifically, the work sought to establish the basis of bank portfolio rigidity and to identify the causes of economic absorption problems and their implications on economic development. The theoretical and conceptual research designs were used. Existing literatures were reviewed using archival retrieval approach, library search and internet exploration. The information obtained was judgmentally, logically and qualitatively analyzed. It was discovered among others, that, bank portfolio rigidity stems from regulatory policy defects using inconsistent monetary policy tools such as high liquidity ratio and cash ratio, etc. and compelling the banks to adhere to the regulatory requirement, as well as lack of adequate and quality stock of infrastructure and technology as the basic causes of economic absorption problems. Above all, low level of economic absorption has been discovered to hinder effective contributions of banks to economic development. Following from above, it was therefore recommended that regulatory tools used by Central Banks should be aligned with the development needs of the economy and the direction of governments. The monetary policy tools such as liquidity and cash ratios should also be moderated and stabilized for stable bank portfolio performance as well as aggressive improvement in the stock and quality of infrastructure and technology within an economy. With the new theory, it is expected that policy formulations and adjustments concerning bank portfolio structure and management would be designed with adequate flexibility and focus on long term loans and investments coupled with improved stock and quality of infrastructure to enhance economic development. This theory therefore provides another frontier of research on bank portfolio structure and contributions to economic development.

Suggested Citation

  • Emmanuel I. MICHAEL & Joseph Michael ESSIEN & Uduak B. UBOM, 2016. "Bank Portfolio Structure and Economic Absorption Theory of Economic Development: A Theoretical Proposition," Expert Journal of Finance, Sprint Investify, vol. 4(1), pages 44-51.
  • Handle: RePEc:exp:finnce:v:4:y:2016:i:1:p:44-51
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    References listed on IDEAS

    as
    1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    2. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633.
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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