The economic development of a country depends inter alia, on the growth of the financial system. The larger the proportion of financial assets to real assets, the greater the scope for economic growth in the long run. For growth to take place, investment is necessary, which has its provenance in the financial system. Besides, as a scarce factor of production in the developing countries, finance has a crucial role to play in this ilk of economies. The growth objective of the financial system is to achieve the structure and rate of growth of various financial assets and liabilities in consonance with the optimal characteristics of real capital stock. The more efficient composition of real wealth is obtained through the promotion of such financial assets, which provide incentives to savers and the public to hold a growing part of their wealth in financial form. Increasing rate of savings correlates with the increase in the proportion of savings held in the form of financial assets relative to tangible assets (Patrick, 1966).
It would be pertinent to note here that economic growth is a function of the level of investment, capital-output ratio and the state of technology. Given the state of technology and capital output ratio in each activity of productive process, the level of investment determines the increase in output of goods and services and incomes in the economy.
There is another aspect of the financial system which is germane to growth, namely, the absorption of liquidity and its use for productive purposes. A well developed financial system with adequate institutions would not only promote savings but also encourage these savings into physical assets such as gold, silver, real estate and commodities. The sensitive commodities of a speculative nature in turn would feed inflation while the same flowing into financial assets (non-inflationary in nature) would underpin growth in the economy and reduce inflationary pressures. In less developed countries with inadequate and underdeveloped financial systems, where, increasing government deficits and growing liquidity is not absorbed in the financial system, it leads to the well-known phenomenon of money chasing goods and to investment in unproductive physical goods and assets, feeding further inflation.
THE COMPETITION IN THE BANKING SYSTEM
The competition in banking industry, like many others, is changing fundamentally. Interest rates in some regions of the world are approaching 40-year lows and equity markets are far more unpredictable than in the bubble years of the 1990s.
A study made by Boston Consulting Group discusses the major dynamics for organizations that hope to control their own destiny in the years ahead. They must come to grips with these dynamics and devise the best ways to manage and profit from them-before their competitors do. The authors further maintain that as the competition in the financial services industry will continue to intensify, consumers will become even more sophisticated, fastidious and products will have shorter and shorter lives. As these dynamics take further hold, the most prescient, nimble institutions will triumph, while the slower, lackadaisical and non-agile players will be left behind. They urge the banking companies to consider the following questions:
* "Would your customers say the service you provide is a primary reason they continue to bank with you?
* "Is your product-development process segment specific?
* "Can you identify product areas and customer segments in which you could most effectively move toward fee generation? Does your management team understand the economic implications for your business of the general industry shift toward fees and, more broadly, of the transfer of value from the back end to the front end of the bank?
* "In your role as a distributor, do your customers see you as a trusted adviser who can help them navigate the confusing world of financial products? …