Xraying Economic and Financial Theories of Distribution of Banks’ Credits and Profitability of Banks

Abstract

The paper reviewed Theoretical framework, neo-classical economics and modern finance theory: Commercial Loan Theory, Credit Risk Theory, Theory of Bank-Based Financial System, Debt intermediary hypothesis, Preference-Adverse Selection Theory, Financial Intermediation Theory, Supply leading theory, Loan Pricing Theory, Shiftability Theory Of Liquidity, Agency Theory, Theories of Economic Growth, Harrod–Domar Model, Solow–Swan Model, Theories of liquidity management, Liability/Liquidity Management Theory, Liquidity Preference Theory, theories of profitability, Profit Maximization Theory, Clark Theory of Profitability, Schumpeter Theory of Profitability, Income Theory of Money, Anticipated Income Theory, Portfolio Theory, Asset Liability Management Theory, Neo-Classical Theory of Interest Rate, Classical theory of political economy and development, Pecking Order Theory (POT)/Hypothesis Of Lending, Financial Repression Hypothesis, Asymmetric Information Theory, Pro-Concentration Theory, Trade-off Theory and Signaling Hypothesis as it relates with Banks’ credits, profitability of banks. Many economists have stressed that banks as a major component of financial system, provide linkages for the different sectors in order to ensure the attainment of the macroeconomic objective of government. A bank is a financial intermediary that accepts deposit from customers and channels the amount mobilized to borrowers in the form of loans and advances. Bank credits represent the amount of loan and advances to individuals and organizations from banking system. The likes of McKinnon (1973) and Shaw (1973) noted that the efficiency of financial intermediation is affected by regulatory regime at a point in time. Deregulation involves a regulatory framework that permits the development of competitive system where consumers are served at reasonable cost. In other words, it is believed that liberalization allows for a market driven intermediation which leads to competition