The Effect Of Monetary Policy On The Banking Industry

Project and Seminar material for Accountancy

Project and Seminar material for Accountancy


Monetary policy is measures designed by the central authority to regulate the quality of money in circulations. This study is on the effect of monetary policy on the banking industry. The objective of the study is to determine the effect of monetary policy on the commercial bank and its effectiveness especially in controlling the quality of money in circulation. Based on the finding, the researcher recommend among other that the regulatory should make sure that the banks adhere to the monetary policies, so that sanity will be maintained in the banking industry and confidence restored.

Chapter One

1.0 Introduction

Monetary policy constitutes the major policy thrust of the government in the realization of various macro economic objectives. It is refers to the combination of discretionary measures designed to regulate the control the money supply in an economy by the monetary authorities with a view of achieving stated or desired macro- economics goals.

The monetary policies are designed to influence the behavior of the monetary sector. This is because change in the behavior of the monetary sector influence various monetary variable or aggregate. The monetary policy enforces at any point in time affect the level of money supply either by expanding it or through contraction of same. It influences the level of and structure of interest rates and thus cost of funds in the the market, depending on the prevailing economic to condition.

The regulation and control of the volume and piece of money is called discretionary control of money: discretionary in the sense that it is made act the instance bank of Nigeria (CBN) has the responsibility of controlling money and credit in the economy in order to check inflationary and deflationary pressure. As the apex monetary authority, has the duty of ensuring that polices are set in motion to regulate the financial sector so as to operate in the same direction with the real sector in order to realize national economic objective.

Sector 2(c) of CBN Decree 24 of 1991 as amended stated that one of the principle object of the bank (CBN) shall be “to promote monetary stability and a sound financial system in Nigeria “. While part v section 3 (a) of the same degree produce that the bank (CBN) shall power to carry out open market operations for the purpose of maintaining monetary stability in the economy of the country and without prejudice to the generality of the foregoing, the bank may also for that purpose issue sell, repurchase, amortize or redeem securities to be known as stabilization securities (which shall constitute it obligation) and the securities shall be issue at such rate of interest and under such condition of maturity, amortization , negotiability and redemption as the bank may deem appropriate”.

Moreover, these polices issued by the central banks are targeted toward the control of the commercial banks and the commercial banks who mobilize these funds from individual depositor. Sometimes are restricted by the polices from engaging in some activities through shift of the of the monetary policy and that can affect the bank.

1.1 Background Of The Study

Monetary polices has central role in macro-economics managements, primary because of the close relationship between the monetary aggregates and economic activities. This is time irrespective of whether one considering the monetarist or Keynesian framework.

The monetary framework of an economy is definitely a scientific device but its application appears to be more of an art in practice , many factor other the logic of the theoretical framework, comes into play, some of the key determinant of the types of monetary management.

The central bank derivable to introduce some monetary instrument, this fact should be born in mind as we as the subject of monetary policy impact on the financial sector of Nigeria central bank.

1.2 Statement Of The Problem

Monetary policy instrument have in one way or the other affect the operation of the banking system. The implication this either creates a positive or negative impact on the overall operation ns of the commercial banks.
However, the main aim of the monetary authority is to produce a regulated environment that would stabilize the macro-economic unbalance. In recent times, most commercial bank becomes illiquid. other problems therefore to be studied in this research work includes:

  1. The negligence exhibited by some com metrical banks in implementing some of these polices established by the monetary authority.
  2. The hindrances which have been militating against the efficiency of the financial system in the country
  3. The impact of the monetary on the banking industry and the economy at large.
  4. The problem of irregularity in information dissemination between the monetary authority, commercial banks and the customers.

1.3 Objectives Of The Study

Basically, any research work has objectives which it wants to pursue. Therefore this write up is designed to achieve the following objectives.

  1. Determine the effect of monetary policy on the commercial banks and the economy.
  2. To evaluate monetary policy as well as its effectives.
  3. To control the quantity of money in circulation thereby controlling inflation through the use of monetary polices.
  4. To examine the monetary instruments and its effects commercial banks.

1.4 Research Questions

  1. In monetary policy are they designed to influence the behavior of the monetary sector?
  2. What are the basic research works in an objective?
  3. What is sector 2 (c) of CBN Degree 24of 1991 is talking about.
  4. What are the different between central bank and commercial banks.

1.5 Significance Of The Study

Monetary policy is seen as a potent factor for economic stabilization. And these instrument issued by central banks to control the money in circulation through the commercial banks operation is encouraging.

The study is therefore important to the following:

  1. Student of accountancy that will like to familiarize themselves with the monetary polices.
  2. The banks and the regulatory authority in our country
  3. The study provides useful information especially to the management of the banks in our country.
  4. The study is an academic exercise and part the requirement for the award of national diploma in accountancy.

1.6 Scope Of The Study

The study is focus on the effect of monetary policy on the
Performance of the banks and the economy. In the cause of this study, five banks are used .These banks include:
Access bank, eco bank, first bank, fidelity bank and fin bank. These banks are located in Owerri, Imo state.
The research will concentrate on these monetary policy issued by the central banks of Nigeria that is used to control the money In circulation.

1.7 Limitations Of The Study

In the cause of this research work, the researcher encountered certain problems and hindrances in the execution of the work. Among which includes;

  1. Limited material and resourced are experience by the research in the cause of the study.
  2. Delays encountered by the respondent in responding to my questions.
  3. The reluctance among some respondent who often sometimes scare me.
  4. There are also very few texts, papers, journals and periodicals in the area of my study.

Despite all these and other limiting factors encountered, by the researcher, it is strongly believed that the objectives of the work have been achieved.

1.8 Definition Of The Terms


An institution that perform financial intermediation function mobilizing funds from surplus spending unit and lend to deficit spending unit of the economy.

Central Bank:

Is the regulatory and supervisory body of the banking industry.

Monetary Policy:

Is the combination of discretionary measures designed to regulate and control the money, supply in an economy monetary authorities, with a view of achieving stated or desired macro-economic goals or objectives.

Monetary Instrument:

Are tools used to pursue their monetary polices.

Commercial Bank:

They are financial intermediaries licensed by the central bank both make loans and accept deposit from customer’s payable on demand.

Interest Rate:

This is a price to the borrower and return on capital to the saver or lender as a result of the service rendered.

Financial System:

Is a set of rules and regulations and the aggregation of financial arrangements, institutions, agents that interact with each other and the rest of the world to foster economic growth and development of a nation

Chapter Three

3.0 Summary, Conclusion And Recommendations

In the preceding chapters, fact and information were collected. The summary and conclusion are made in this chapter. Finally, recommendation are made as pertains to the area of the study that is not found completely satisfactory for improvement on such aspects

3.1 Introduction

In chapter one of these projects is taking above the monetary policy of the selected banks. The background of the study, statement of the problem and how objective of the study is researched.

For a good project to be written on “the effect of the monetary policy on the banking industry” certain process and method have to be followed in order to educate the readers with correct, valid, current and useful information on the research topic. This chapter is aimed at bringing out the research method used by the researcher in gathering the summery , conclusion, recommendation, summary of finding, reference and appendix.

3.2 Summary Of Finding

This study is based on the monetary policy introduced by the central bank of Nigeria and its effect on the banking industries. To carry out effective study, the researcher divided the work, background of the study, statement of the problem, objectives of study, questionnaire where administered and analyzed a statistical used for analysis.
However the introduction and the summary of these monetary policies affect the operation of the commercial bank in Nigeria and it is are effective and a potent measure in controlling the commercial banks and the quantity of money in circulation.

3.3 Conclusion

From this research on the effect of monetary policy on the banking industry in Nigeria, the research conclusion as follows:

  1. That monetary is an effective weapon use to control the activities of the commercial banks.
  2. There monetary policy affects the operation of commercial banks in Nigeria.
  3. The monetary policy can be used to control the quality of money and the operations of the banking industry
  4. The monetary policy instrument is an effective measure to boost or accelerate economic development in the country.

3.4 Recommendations

Based on the summary find and conclusion research from this study the following recommendations are offered for possible implementations.

  1. Despite the positive impact of the monetary policy, the regulatory authority should try to reduce the reserve requirement so that the liquidity of the bank will not be shaking.
  2. That monetary policy should be directed towards given commercai8l Banks Avenue to grant loans to investors to boost economic development.
  3. That some of the monetary policies should be flexible so that it can adjust to the changes of the economy.
  4. The regulatory authority should make sure that the banks adhere to the monetary polices introduced, so that sanity will be maintained in the banking industry and confidence restored.

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