Causes Of Fraud In The Nigeria Banking Industry (A Case Study Of Fin Bank Plc Oitsha And Owerri)

Project and Seminar material for Banking and Finance

Project and Seminar material for Banking and Finance


Dedication


This project work has been dedicated to the Glory of God. Also to the honor of my parents and siblings who are taking care of me and for their financial support towards the success of this work.


Acknowledgement


I acknowledge with utmost gratitude the immense assistance of several individuals towards the successful completion of this research work and for the grace to finish this national diploma (ND) programme.

I am most grateful to my supervisor Chief A.A Ojiukofor his expert and fatherly advice during the course of this research. I am also thankful to my head of department Mr. Kanu. N.O.N and all students of the department of Banking and finance, Federal Polytechnic Nekede for their immeasurable guidance throughout the duration of this work.

I sincerely appreciate the efforts of my parents Mr. and Mrs. Jerome Anamene who suffered for me right from birth. They denied themselves many other things to make sure that I have come to this level of education.

I can not forget to thank Mr. Aloysius Anamah, Mr. Izuchukwu Odinukwe and My friends Loius, Uranta, Ikenna Amarachi, Chidimma, Kossi, Queen, Chimezie, Christopher for their numerous understanding since the inception of my academic pursuit.

Finally, my good people, I know there would be no amount of thanks that will commensurate with the abundant assistance rendered to me either directly or indirectly towards the completion of this project. My prayer is “May the Lord Almighty bless and reward every one of you in Jesus name.


Abstract


First and foremost, this topic, “The impact of monetary policies in the liquidity of and profitability of commercial Banks in Nigeria” is of a high significance to the financial sector of Nigeria. The monetary policy is designed by the CBN to influence the behaviour of the monetary sector in the monetary variables or aggregates.

In investigating the impact of monetary policies on the liquidity and profitability of commercial banks in Nigeria, interview schedule and questionnaire were drafted. A total of thirty (30) copies of the questionnaire were randomly -distributed to staff of two commercial banks – Union bank and First bank and out of which, twenty six copies were returned while the other four could not be retrieved as a result of some staff being so busy on that day and did not bother about following the questionnaire e.g. staff working in the counter. In essence, this research worked with only twenty six copies of the questionnaire.

Hence research questions were used in place of hypothesis in cause of conducting the research. Some questions were asked to reflect the extent to which this works tender to cover. However, the impact of monetary policies were effective up to 65% and the instruments of this policy attained 100%.

It was also revealed that there is 100% of positive drawback in the implementation of monetary policy and 75% said that these drawbacks are militating against the effectiveness of these policies. Generally, respondents are of the view that monetary policies can be used side by side (100%) and it has not be regularly implemented.


Table Of Contents


  • Title page i
  • Approval page ii
  • Dedication iii
  • Acknowledgement iv
  • Abstract v
  • Table of contents vii

Chapter One

  • 1.0 introduction 1
  • 1.1 General overview of the study 4
  • 1.2 Statements of problem 5
  • 1.3 Objective of the study 7
  • 1.4 Research questions 8
  • 1.5 Significance of the study 9
  • 1.6 Scope of the study 9
  • 1.7 Limitation of the study 10
  • 1.8 Definition of terms 10

Chapter Two

  • 2.0 Literature review 13
  • 2.1 Introduction 13
  • 2.2 What the monetary policy is all about 13
  • 2.3 Nigerian banking system (A historical perspective i.e. CBN) 14
  • 2.4 Objectives of monetary policy 6
  • 2.5 Instruments of monetary policy 19
  • 2.6 Effects of monetary policy on liquidity 20
  • 2.7 Effects of monetary policy on profitability 25
  • 2.8 The role of liquidity and profitability to bank performance 30
  • 2.9 Limitation of monetary policy 32
  • 2.10 Problems in the implementation of monetary policy 34

Chapter Three

  • 3.0 Research design and methodology 36
  • 3.1 Introduction 36
  • 3.2 Population and sample size 39
  • 3.3 Sample techniques 40
  • 3.4 Research design 40
  • 3.5 Techniques of data analysis 41

Chapter Four

  • 4.0 Presentation and analysis of data 42
  • 4.1 Introduction 42
  • 4.2 Presentation of data 43
  • 4.3 Analysis of data 44
  • 4.4 Interpretation of result 52

Chapter Five

  • 5.0 Summary, conclusion and recommendation 54
  • 5.1 Summary 54
  • 5.2 Conclusion 56
  • 5.3 Recommendation 57
  • Bibliography 59
  • Questionnaire 60
  • Appendix (i) 61
  • Appendix (ii) 62

Chapter One


1.0 Introduction

Monetary policy is a major economic stabilization weapon which involves measure designed to regulate the volume, cost, availability and direction of money and credit in the economy.

According to (Uzoagu: 1981), monetary policy is the expansion and contraction in achieving some state national objectives. This major economic stabilization weapon is made available to the monetary authorities for the conduct of their financial system towards improving their economic performance. The central bank of every country uses this control technique to direct and regulate the allocation of credit within the economy. In Nigeria, the first guideline known as the manual monetary policy circulars usually circulated to all the country after enouncement of the annual budget.

Christy and Roden (1997) define monetary policy as the central bank’s effort to regulate the economy by managing the supply, cost and availability of money and credit.

Miller (1976) also defines monetary policy as the combination of measures designed to regulate the volume, supply and cost of money in an economy, in consonance with the level of economic activity.

In Nigeria as in other developed nations, the monetary and credit guideline issued as well as the type of instrument used depending on the type of economic policy of the government which could be expansionary or contractionary.
As stated by LAYI ALABI (1991) the monetary policy instruments adopted in Nigeria to achieve the above economic objectives are broadly divided into:

The quantitative instruments:

They are those instruments that deal with the volume or quantity of money. It is divided into traditional and non-traditional quantitative techniques.

The Traditional Quantitative Include:
  1. Open market operation (OMO)
  2. Discount and interest rate
  3. Reserve requirements
  4. Exchange rate
The Non-Traditional Quantitative Instruments Include:
  1. The direct control of bank liquidity or credit variable
  2. Liquid assets ratio
  3. iSupplementary reserve requirements

The Quantitative Instrument Are Used Primarily To Distribute Direct Credit To The Most Profitable Sector Of The Economy And They Include:

  1. Moral suasion
  2. The selective credit control

The quantitative instruments are used to achieve the macro economic objectives and this greatly affect the bank’s liquidity and profitability position. One major instrument of monetary policy is the interest ratio. The CBN annual review of various years, the initial gradual upward review in bank lending rates were followed by the changes in the minimum full deregulation of discount rate, bank deposit and lending rates.

Another policy element in determining the rate was fixing of the spread between the saving deposit rates and prime lending rate (PLR) as well as the margin between prime lending and the maximum lending rate, the inter-bank rate was also to bear a relationship to the prime lending rate. Finally, the guided deregulation of the interest and bank deposit rates were introduced.

Similarly, all these policies measures are designed as stated earlier to stabilize in short-run and to effective emergency of market oriented financial sector for effective mobilization of savings an efficient resource allocation.


1.1 General Overview Of The Study

The central Bank as the apex monetary authority has the duty of ensuring that policies 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 objectives.

Section 2 (c) of CBN decree 24 of 1991 as amended stated that one of the principles “objectives” of bank (CBN) shall be “to promote monetary stability and a sound financial system in Nigeria”.

While section 3 (A) of the same decree provides that “The banking shall power to carryout Open Market Operation (OMO) for the purpose of maintaining monetary stability in the economy of the country and without prejudice to the generality of the forgoing”. The bank may also for that reason issue sell, repurchase, amortize or redeem securities to be known as “stabilization securities (which shall constitute its obligations) and the securities shall be issued at such rate of interest and under such conditions of maturity, authorization negotiability and redemption as the bank may deem appropriate”.


1.2 Statement Of Problem

One area of interest to many researchers is the relationship between banks performance and macro economic policies. The impact of interest rate or monetary changes on commercial banks liquidity and profitability has increasingly concerned economics and policy matters as financial market conditions have become more volatile in recent years.

The general opinion that banks and other financial institutions borrow money on short-term and lend on long-term brings about mismatch of funds and this create problem in banking sector like recent distress in Nigerian banking sector.
Some specific problems, include the following:

  1. Reviewing the range of monetary policy used within the period of 1993-1997.
  2. Is there need to continue to use the current monetary policy measure to direct funds in the economy?
  3. The limitations or constraints to the effective implementation of monetary policy measure in use within period under review.
  4. Are there some policy measures that have not been useful in the regulation of the activities of economy and hence, the need for a change.

The researcher here has observed that Nigeria as a nation has been characterized by chronic unemployment, galloping inflation, filling inventories, fluctuation in exchange rates, daily depreciation of the value of naira and various cycle to poultry among the Nigerian masses especially in rural areas.

The researchers further observed that although the policies makers may have been trying in designing.


1.3 Objectives Of The Study

The following are the objectives:

  1. Ensuring the credit is directed to the productivity sector.
  2. Ensuring that there is equitable and fair allocation of credit between the private and public sectors of the economy.
  3. Ensuring that there is economic growth that is sustainable over a long term.
  4. Ensuring generally, that adequate credit goes to the productive sectors to expand production as a cure against inflation, to curb consumption an hereby dampen the pressure on price increases.

The monetary policy circulars are powerful instruments by which the monetary authorities steer the economic slip of the nation and great importance is attached to their strict observance by attending the objectives which are in contrast to the banks objectives of profitability and liquidity has great impact on the banks performance (ADE T. OJO and WOLE ADEWUMI 1982).


1.4 Research Questions

  1. Does the impact of monetary policy on the liquidity and profitability of commercial banks play any role in the development of a country?
  2. Does economic instability influences the country financial sector?
  3. What could be the outcome of commercial banks when they are unable to meet the liquidity ratio or power of the worthy customers?

1.5 Significance Of The Study

  1. It has open my knowledge on how to carryout research problem.
  2. It is important to everybody especially those who are into banking business that is the customers and bankers
  3. Helps in adding to the stock of existing literatures in banking and the adequate survival of commercial banks.
  4. Aid government in the regulator policy and control of money, credit in the economy.

1.6 Scope Of The Study

For a meaningful and through research work on impact of monetary policy on the liquidity and profitability of the banks, the study is restricted to commercial banks in the Nigeria financial system. Here, banks liquidity and profitability indices were identified and defend to test against policy instruments.


1.7 Limitations Of The Study

The following are the major limitations of monetary policy:

  1. Commercial banks generally restrict their loans to large and medium enterprises such as mining, power etc.
  2. Demands deposit (checking accounts) as a percentage of the total money supply are generally low.
  3. Its effectiveness lag can be very long and uncertain.
  4. It may be ineffective in lifting an economy out of a recession.

1.8 Definition Of Terms

The following terms have been precisely defined as rates to the context of this research work:

Monetary Policy:

an economic stabilization weapon used by the monetary authority to regulate the volume, cost, availability and direction of money and credit in the economy.

Monetary Circulars:

Are guidelines the country used to direct the affairs in the allocation of credit within the economy.

Regulation:

This is system where the activities of the commercial banks like interest rates are controlled by the central government (CBN).

Profitability:

The ability of the bank to make a maximum returns to satisfy the interest of its customers.

Liquidity:

The availability of money to meet current or maturing obligations.

OMO:

Open market operation: Ability of the CBN to go into market to buy securities when the economy is tight and sell when inflated (i.e. one of the quantitative tools of the CBN).

Securities:

Refers to various promissory documents adopted as evidence of claim in the Market.

Bank Discount Rate:

The rate that the CBN allows commercial bank to borrow short-term in order to meet liquidity positions or loan demand.

Prime Lending Rate:

The rate allow to worthy credit customers on borrowing.
Quantitative instruments: Those instrument that deal with the volume and quantity of money.


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