THE STRATEGIC ROLE OF THE BANKING SYSTEM IN DRIVING ECONOMIC DEVELOPMENT
Keywords:
Banking, economic development, financial inclusion, credit, investment, savings, monetary policy, financial stability, digital banking, risk management.Abstract
The banking system plays a pivotal role in promoting sustainable economic development by mobilizing savings, allocating capital efficiently, and facilitating investment. As intermediaries between savers and borrowers, banks are the backbone of financial stability, enabling economic growth through credit provision, liquidity management, and risk diversification. Historically, economies with strong banking systems have shown higher resilience to financial shocks and greater capacity for long-term development. Modern banking is not limited to traditional deposit and lending services; it also involves digital finance, payment systems, and innovative financial instruments that integrate global markets. In developing economies, access to banking services is closely associated with financial inclusion, poverty reduction, and entrepreneurship development. Meanwhile, in advanced economies, banks influence macroeconomic stability through monetary transmission and policy implementation. However, the 2008 global financial crisis highlighted the vulnerabilities of poorly regulated banking systems, emphasizing the importance of transparency, supervision, and risk management. This article examines the strategic importance of the banking system in economic development, exploring theoretical foundations, global experiences, and contemporary challenges. The study also highlights how digital transformation and sustainable finance are reshaping the banking sector’s contribution to development. Findings suggest that banking systems must balance profitability with social responsibility to achieve long-term economic progress.
