The Effects Of Nigeria Monetary And Firm Policies On Commercial Banks
Banks generally play important role in the development of any economy. Hence the industry is so sensitive that it is said to be the backbone of every economy. The failure of bank (commercial banks in particular) may therefore bring about failure of the entire economy hence the need to control the activities of commercial banks to ensure effective economic development. The objective of this work is main to find out the problem of commercial bank in implementing monetary and firm policy guidelines. The significance of monetary policy cannot be over-emphasized thus if there is inflation or excess demand causing import to rise monetary policy is used to reduce the demand. On the other hand if the interest rate are reduced through monetary policy borrowing is encouraged and the community will benefit.
Table of Content
- Title Page
- Table of Content
- List of Tables
- 1.1 Background of the Study
- 1.2 Statement of the Problem
- 1.3 Objective of the Study
- 1.4 Research Questions
- 1.5 Research Hypothesis
- 1.6 Significance of the Study
- 1.7 Scope of the Study
- 1.8 Limitation of the Study
- 1.9 Definition of Terms
- 1.10 Organisations of the Study
Review of Literature
- 2.1 Conceptual Framework
- 2.2 Theoretical Framework
- 2.3 Empirical Review
- 3.1 Research Design
- 3.2 Population and Sample of the Study
- 3.3 Data Collection Techniques
- 3.4 Model Specification
- 3.5 Test of Significance
- 3.6 Method of Data Collection
- 3.7 Method of Data Analysis
Data Presentation and Analysis
- 4.1 Data Presentation
- 4.2 Test of Hypotheses
- 4.3 Interpretation of Result
Summary, Conclusion and Recommendation
- 5.1 Summary
- 5.2 Conclusion
- 5.3 Recommendation
1.1 Background to the Study
Monetary policy is one of the macroeconomic instruments with which nations (including Nigeria) do manage their economies (Ajie and Nenbe, 2010). According to Ubi, Lionel and Eyo (2012), monetary policy is an aspect of macroeconomics which deals with the use of monetary instruments designed to regulate the value, supply and cost of money in an economy, in line with the expected level of economic activity. It covers gamut of measures or combination of packages intended to influence or regulate the volume, prices as well as direction of money in the economy per unit of time. Specifically, it permeates all the debonair efforts by the monetary authorites to control the money supply and credits conditions for the purpose of achieving diverse macroeconomic objectives. In Nigeria, the responsibility for monetary policy formulation rests with the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance (FMF) (Ajie and Nenbe, 2010; Ajayi and Atanda, 2012; Abata et al., 2012).
The existence of an effective banking sector is necessary for every economy because it creates the necessary environment of economic growth and development through its role in intermediating funds from surplus sector to deficit sector of the economic units. Banking sectors are financial intermediaries whose activities are for collection of savings and lending, thus standing in between the ultimate lender and the borrower and matching the investment requirement of the lender. This stimulates investment as well as international trade and balance of payments. In playing this important role of financial intermediation, the banking sector is seen as effective institution in the use of monetary policy, which relies on the control of money stock in order to influence financial and economic activities. The extent to which monetary policy influences financial and economic activities has been widely argued over the years, it is equally accepted that monetary policy affects economic and financial performance of any economy. There are divergence views on the extent of the effects and the channels through which these effects are achieved. This is particularly relevant in the Nigeria setting where the money and capital market are under-developed and Nigerian government has over the years adopted various instruments of monetary policy to regulate and control the cost, volume, availability and direction of money credit and also the performance of commercial banks. On the other hand, most financial intermediaries are often apathetic towards channeling resources to productive investment even in the face of lower interest rates. All these factors have been cited as limiting the performance of monetary policy in Nigeria. Main while, severe structural supply constraints are deemed to inhibit expansion of output even when the demand for it increases. An expansionary monetary policy consequently often results in inflation rather than output growth.
1.2 Statement of the Study
The primary function of banking sector as a financial institution is to source for fund from the surplus unit to the deficit unit of the economy in relations to the institutions survival, economic growth and National development. However, banks major or primary goal, aims and or objectives is to survive through profit making more like other commercials organizations in other to survive and remain significant in a competitive environment. Profitability is important for financial intermediaries like banks because it show the strength and progress of the bank and it help to generate and radiate confidence in the bank.
However, as much as the bank can control its internal factor, it has no or limited control over its external factors such as Government and CBN in relations to policies formulation and implementation, as Bank operate within the framework of the monetary policy and banking regulation that is provides by the central bank of Nigeria. The CBN has employed different policies to regulate and control the cost, volume, availability and direction of money creation in order to achieve the objective of monetary policy which includes price stability, full employment, economic growth and reducing inequality of income and wealth.
In this study, the impact of monetary policy in Nigeria banking institution will be investigated. The investigation on the impact of this monetary policy in Nigeria banking institutions will enable its complete distribution even to the local communities. It will also enable its ascertainment on the likely problem that will occur on the process of implementing monetary policy. It will also go a long way. Way in making people know how to spend their money.
1.3 Objective of the Study
This study basically aims at examining the effects of Nigeria monetary and firm policies on commercial banks. Therefore, it will:
- Examine the impact of banking sector performance on economic development in Nigeria.
- Identify the channel through which monetary policy influences the performance of banking sector in Nigeria.
- Examine what changes in profitability resulted from changes in monetary policy.
- Articulate tentative policies that promote the performance of the banking sector in Nigeria. .
1.4 Research Question
For the purpose of this study the following question will guide this work.
- How does C.B.N implement their monetary policy
- How does the C.B.N uses the monetary policy in controlling the price stability of the state.
- How does monetary policy increase the growth of the economic productivity.
1.5 Research Hypothesis
Based on the research objectives, the hypotheses to be tested include: Ho: There is no significant relationship between monetary policy and bank deposit liabilities in Nigeria.
- HI: There is significant relationship between monetary policy and bank deposit liabilities in Nigeria.
Ho: There is no significant relationship between deposit liabilities of commercial banks and deposit rate in Nigeria.
- HI: There is significant relationship between deposit liabilities of commercial banks and deposit rate in Nigeria.
HO: There is no significant relationship between deposit liabilities of commercial banks and minimum discount rate in Nigeria.
- HI: There is significant relationship between deposit liabilities of commercial banks and minimum discount rate in Nigeria. .
1.6 Significance of the Study
This project proposal is significant in the following ways:
- To prospective study who wants to know more on the impact of monetary policy in the banking sector.
- The study will be relevant to those who work in the bank to help them know how impact monetary policy in banking sector.
- To the Government on how to plan to improve the impact of monetary policy in banking institutions.
1.7 Scope of the Study
This study will cover areas of academics, business, Government and banks
1.8 Limitation of the Study
A study of this nature cannot be carried out without difficulties in the process. An important constraint is the time constraint. This research proposal work and examination and the research were complied with a very short period of one week.
Another constraint is finance, a research of this nature involves adequate search ( raw materials)
Lastly, difficulty in securing relevant data for the study
1.9 Definition of Terms
Harry (1962) defines monetary policy as a “policy employing central banks control of the supply money as an instrument of achieving the objectives of general economic policy”.
According to C.B.N brief (1999) monetary policy refers to the combination of measure designed to regulate the value, supply and cost of money in an economy in consonance with the level of economic activity.
Barbara (2006) defined monetary policy as one of the main policy tools used to influence interest rate, inflation and credit availability through changes in supply of money or variable in economy
Falepan (1978) maintain that monetary policy deals with the discretionary control of money supply by the monetary authorities in order to achieve stated or desired economic goals.
Financial Performance analysis refers to analytical tools to measure the strength and weakness of a firm in relation to its balance sheet and profit and loss statement. Examples of bank financial performance tools and ratios include operating income, earnings before interest and taxes, Total Asset value. Financial performance analysis is carried out to ascertain the profitability position and performance of a firm. It can be conducted by management, owners, creditors, investors as demonstrated by Chenn (2011).
Deposit Mobilization measures the aggregate mobilization of deposits in the economy. Deposits are bank accounts that allow the owner of the account (creditor) to make demand on banks. They include demand, time and savings and money market deposit account.
1.10 Organizations of the Study
The chapter one consist of the introductory part of the study which includes the study background, the statement of the research problem, the study objective and scope of the study.
The second chapter is a critical review of other literatures relevant to the study and its objectives including the theoretical framework for the study. While the third chapter is methods of data collection, sampling and data analysis used in conducting the study. The fourth chapter centres around the research findings including an analysis of how it relates to previous findings. The fifth chapter consists of the summary of findings, conclusion and recommendations base on the study objectives.
Summary, Conclusions and Recommendations
This section presents the summary of findings, conclusions, limitations of the study, recommendations for policy and practice, and suggestions for further research.
The study sought to examine the effect of monetary policy tools on the financial performance of commercial banks in Nigeria. The study focused on 22 commercial banks and collected data for 5 years from 2017 to 2022 from the annual reports of the commercial banks.
SPSS version 16 was then used to analyse the panel data using regression analysis, correlation analysis and descriptive analysis. The results showed that the model explained 17.7% of the variance in financial performance as given by the value of R2. The model was also fit to explain the relationship as the F-statistic of 5.598 was significant at 5% level, p = 0.000. This model was therefore good enough to explain how monetary policy tools influence the financial performance of commercial banks in Nigeria.
The study found that T-Bill rate had positive effect on the financial performance of commercial banks in Nigeria. This effect was insignificant at 5% level, β = 0.506, p = 0.608. The results also show that the Central Bank Rate had a negative effect on the financial performance of commercial banks. This effect was insignificant at 5% level, β = -0.221, p = 0.687.
The table further shows that Cash Reserve Ratio had a negative and insignificant effect on the financial performance of commercial banks, β = -4.349, p = 0.622. Finally, the study revealed that bank size had a positive and significant effect on the financial performance of commercial banks in Nigeria, β = 0.009, p <0.05.
The study examined the effect of monetary policy tools on the financial performance of commercial banks in Nigeria.
The study found that monetary policy tools have no significant effect on the financial performance of commercial banks in Nigeria. Thus, the study concludes that monetary policy tools do not influence the financial performance of commercial banks in Nigeria.
The study assessed the effect of Treasury Bill Rate (T-Bill Rate) on the financial performance of commercial banks in Nigeria. The results showed that T-Bill Rate had a positive effect on the financial performance of commercial banks.
Thus, the study concluded that T-Bill rates have a positive but insignificant affect the financial performance of Commercial banks in Nigeria.
The study examined the effect of Central Bank Rate on the financial performance of Commercial banks in Nigeria. The results showed that Central Bank Rate had a negative effect on the financial performance of commercial banks. The study therefore concluded that Central Bank Rate has no significant affect the financial performance of commercial banks in Nigeria.
The study also assessed the effect of Cash Reserve Ratio on the financial performance of commercial banks in Nigeria. The results showed that Cash Reserve Ratio had a negative effect on the financial performance of listed banks. Thus, the study concluded that Cash Reserve Ratio does not affect the financial performance of commercial banks in Nigeria.
The study examined the effect of bank size on the financial performance of listed banks in Nigeria. The results showed that bank size had a weak positive effect on the financial performance of commercial banks. Thus, the study concluded that bank size affects the financial performance of listed firms in Nigeria.
Based on the findings of this study for efficient and sustainable improvement in the performance of banking sectors in the Nigerian economy, we recommend the Effective and sustainable monetary policy capable of ensuring growth and development in the banking sectors should be adopted; In addition to effective deposit rate, incentives should be given to the public in form of higher interest on deposit in order to encourage and mobilize more funds from the public; Banking sectors should strengthen and improve on its awareness mechanism to educate the public on the need, benefit and essence of imbibing the banking culture; Administration of monetary policy should be such that is flexible to enable the commercial banks to discharge their duties effectively to the public; A monetary policy adopted should aim at stabilizing and stimulating a realistic exchange rate for the banking sectors in the Nigerian economy; and Stipulation of Minimum Discount Rate by the Central Bank of Nigeria (CBN) should be such that would promote growth and development of the banking sectors in the Nigerian economy.
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