The Effect Of Government Policy On Commercial Bank Lending Ability
This research work is aimed at satisfying those who have interest in the effect of government policy on commercial banks lending ability in Nigeria (1999-2005) especially the bankers throughout the world who are involved in financial transaction with Nigeria. The data required for achieving this questionnaire, Newspaper, Journals union bank Bullion were used. Finally, the title the effect of government policy on commercial bank lending ability in Nigeria (Union Bank) as discussed in this project does not supply enough information needed, therefore there would be need for an investigation into the extent of actual effect on lending ability of commercial bank.
1.1 Background of the Study
The banking system in Nigeria has undergone radical changes during the 35 years since independence . Banking developed from an industry which in 1960. was dominated by a small number of foreign owned banks into, one in which public sector ownership predominated in 1970s and 1980s and in which Nigeria private investors have played an increasingly important role since the mid 1989’s government polices had a major influence on developments in the banking industry. Extensive government intervention characterized financial sector policies beginning in the 1960s and intensifying in the 1970s, the objective of which was to influence resource allocation and promote indigenisation. Since 1987 financial sector reforms have been implemented, encompassing elements of liberalization and measure to enhance prudential regulation and tackle bank distress. The effect of government polices on the commercial bank lending in Nigeria in the period since independence all examine how banks were affected by public ownership and polices of financial repression the reasons behind the growth of Local Private sector banks, to causes of the financing distress in the banking industry and the efficacy of financial reforms undertaken. We aim to explore two related issues first, that government control on financial markets. Public ownership of banks and the neglect of prudential regulation as opposed to allocative regulation had detriment effects on the banking lending, especially in terms of the quality of banks loan portfolio. Efficiency and competition second, that the efficacy of financial liberalization and other financial sector reforms to enhance the efficiency of intermediation in banking market has been limited. In part because of the legacy of pre-reform intervention ion banking lending, which left large sections of the banking industry in financial distress, but also because some of the reforms were inappropriately sequenced and other were not implemented in a consist ant manner. On the commercial banks. Although other financial institution have been set up in Nigeria including development finance institution (DFIS), insurance companies and plethora of finance houses, hire purchase companies and mortgage companies, banking dominates the financial and merchant banks together accounted for 85 percent of the total asset of the emerged during the 1980. Some of these banks were set up banks by state governments but the majority were stated by Nigeria private investors. The tensive growth of the local private banks was very rapid after 1986, particularly in merchant banking sector by 1992 there were 66 commercial banks operating in Nigeria. Despite the growth of new entrants however the three largest banks have retained their dominance of banking market, accounting for 48 percent of the total deposits of the commercial banks while Afric bank accounts for a further 7 percent. The banking industry has been afflicted by wide spread financial fragility almost half, the total number of banks in operation, were regarded as distressed or potentially distressed by the regulatory authorities in 1995. The state government owned most of the distressed banks.
1.2 Statement of the Problem
The environment in which commercial banks operate has been the direct result of the banking sector has been subject to extensive regulation of the banking sector of the Nigerian government lending. There is competition among banks and non-banks financial institution. It is now the survival of the fittest the central bank of Nigeria as well as direct participation by the federal government and state government during the post independence period economic nationalism and developmental aspirations were important motivation for interventionist polices. The character of these polices was that of financial repression in that control depressed interest rate and cancelled resources away from areas where private rate of return would have been maximized. The allocate control have been liberalized to some extent since 1986, although controls over lay areas remain in force. This section outline the efforts made by the Union Bank of Nigeria to influence resources allocation in banking lending through the use of administrative controls polices pertaining to public ownership of banks.
The denomination of banking by expatriate banks during the colonial period provoked considerable resentment among Nigerian, including businessmen and politicians. The expatriate banks were perceived as acting solely in the interest of their foreign owners rather than in Nigerians and of the Nigerian economy in particular they were accused of discriminating against indigenous businesses in the allocation of loans and falling to finance the developmental needs of the country, instead concentrating on the provision of short term loan related finance to foreign companies. Consequently government objective following independence included securing greater local control over the banking lending and ensuring improved access to credit for indigenous businesses and priority sector.
During the 1960s the union bank of Nigeria was given extensive powers to regulate the quantity cost and direction of bank credit. These powers were used to further monetary control a priority throughout most of the post independence period because of inflationary pressures in the early 1990s by the issuance of stabilization securities by the Union bank of Nigeria to those banks with excess liquidity. The consequence was a reduction in the aggregate liquidity of the banking system which contributed to a sharp rise in interest rates on later bank deposit. Interbank rates rose to us percent the availability of funds on the interbank market diminished sharply when some banks began to default on their interbank lending obligation. As the scale of the fragility in the industry become apparent depositors withdraw funds from banks suspected of being more secure. The difficulties involved in deposit mobilization combined with the non servicing of a large share of their loan portfolios meant that the distressed banks became increasingly illegal and overdrawn on their accounts with the union bank of Nigeria. The problem in the effect of lending have effectively mobilized deposits for the banks, this work is aimed at finding the night answer to the question raised.
1.3 Objective of the Study
The objectives of the study are;
- To ascertain the Effect of lending policy on commercial bank ability to grant loan.
- To assess the effect of government policy on inflation rate in the country.
- To ascertain if monetary policy will, in any way reduce inflation in the country.
- To ascertain how government policy on commercial bank affect its ability to grant loan
1.4 Research Hypotheses
For the successful completion of the study, the following research hypotheses were formulated by the researcher;
- H0: Lending policy does not affect the commercial bank ability to grant loan.
H1: Lending policy does affect the commercial bank ability to grant loan.
- H02: Government policy does not affect inflation rate in the country
H2: Government policy does affect inflation rate in the country
1.5 Significance of the Study
The study is significant for the fact that many banks have been introduced and more are scheduled to hit the loan government progress on its efforts. It is of great importance to the operation in the banking lending in that it would enable them assess the degree of the successes of their banks and be able to identify unprofitable ones. It will also serve as the first information for new comers in the bank and those intending to lend some. In determining their targets in bank lending, again it will be beneficial to student in banking and finance and research who may be interested in this area of study.
1.6 Scope and Limitation of the Study
The scope of the study covers the effect of government policy on commercial bank lending ability in Nigeria. The researcher encounters some constrain which limited the scope of the study;
a) Availability of Research Material:
The research material available to the researcher is insufficient, thereby limiting the study
The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
c) Organizational Privacy:
Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.
1.7 Definition of Terms
1. Commercial Banks:
This is an institution set up to do banking business accepting deposit from public and makes profit by lending money out of the public.
The giving of money to the customer by a bank with interest on the ground that such bank has enough security to back up such loan when the due time is matured.
3. Inter Bank Clearing:
This is an arrangement by which banks settle instrument drawn on them by their customer in the clearing house, representatives of commercial bank deliver chques drawn on other banks and receive instruments drawn on them by the bank.
The liquidity of assets means the ease with which it can be turned into cash with certainty a bank has to keep adequate volume of non-earning assets such as, cash call money, treasury bills and other short term maturing instruments in its portfolio
1.8 Organization of the Study
This research work is organized in five chapters, for easy understanding, as follows
- Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
- Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
- Chapter three deals on the research design and methodology adopted in the study.
- Chapter four concentrate on the data collection and analysis and presentation of finding.
- Chapter five gives summary, conclusion, and recommendations made of the study
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to ascertain the effect of government policy on commercial bank lending ability in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of government policy on commercial bank lending ability in Nigeria
This study was on the effect of government policy on commercial bank lending ability in Nigeria. Four objectives were raised which included: To ascertain the Effect of lending policy on commercial bank ability to grant loan, to assess the effect of government policy on inflation rate in the country, to ascertain if monetary policy will, in any way reduce inflation in the country, to ascertain how government policy on commercial bank affect its ability to grant loan. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of Union bank, Akwa Ibom state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers, accountants, customer care officersand marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
The study has shown, using the error correction mechanism of the ordinary least squares regression technique, that the efforts of monetary policy at influencing the volume of Commercial Banks loan and Advances in Nigeria through exchange rate and money supply do not influenced volume of Commercial Banks loan and advances. The result is in consistent with the findings of Ogunyomi (2011) which conclude that Monetary Policy are ineffective for increasing the volume of Commercial Banks loan and Advances in Nigeria and executed in such a way that the objective it is to achieve is clearly and transparently defined in response to the dynamics of the domestic economic developments. Hence, we suggest that monetary authority should make efforts to develop indirect monetary instruments and exercise appropriate control over the monetary sector. The use of indirect monetary policy instruments influences the supply of bank reserves and by implication money supply in the economy which in turn directly generate price change in financial asset
The study recommends the bank to come up with loan differentiation strategies by segmenting the customers based on their needs, size and type of business and designing products that meet the unique needs of these customer segments and also creating a pricing strategy for each segment. The banks should consider more products and services which can appeal to the women and youth who form the bulk of the Nigeria population. The youth comprises of 42% of the population in Nigeria and have different tastes from the rest of the population. There is an upcoming niche of young generation who is economically powerful and requires a financial institution that can best meet their needs. Targeting this niche therefore will enable the bank to broaden its customer base and consequently loan book.
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