The Impact Of Monetary Policies On The Liquidity And Profitability Of Commercial Banks In Nigeria

Project and Seminar Topics with material for Banking and Finance

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 variable or aggregates. In investigating the impact of monetary policies on the liquidity and profitability of commercial bank 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 impacts of monetary policies were effective up to 65% and the instruments of this policy attained 100%. Generally, respondents are of the view that monetary policies can be used side by side (100%) and it has not been regularly implemented.

Table Of Contents

Preliminary Page(s)

• Title page
• Approval page
• Dedication
• Acknowledgement
• Abstract
• Table of contents

Chapter One

1.0 Introduction

• 1.1 Background of the study
• 1.2 Statements of problem
• 1.3 Objectives of the study
• 1.4 Research questions
• 1.5 Significance of the study
• 1.6 Scope of the study
• 1.7 Limitation of the study
• 1.8 Definition of terms

Chapter Two

2.0 Literature Review

• 2.1 Introduction
• 2.2 What the monetary policy is all about
• 2.3 Nigerian banking system (A historical perspective i.e. CBN)
• 2.4 Objectives of monetary policy
• 2.5 Instruments of monetary policy
• 2.6 Effects of monetary policy on liquidity
• 2.7 Effects of monetary policy on profitability
• 2.8 The role of liquidity and profitability to bank Performance
• 2.9 Limitation of monetary policy
• 2.10 Problems in the implementation of monetary policy

Chapter Three

3.0 Research Design and Methodology

• 3.1 Introduction
• 3.2 Research design
• 3.3 Sources/methods of data collection
• 3.4 Population and sample size
• 3.5 Sample technique
• 3.6 Validity and reliability of Measuring instrument
• 3.7 Method of data analysis

Chapter Four

4.0 Presentation and Analysis of Data

• 4.1 Introduction
• 4.2 Presentation of data
• 4.3 Analysis of data
• 4.4 Interpretation of result[s]

Chapter Five

5.0 Summary, Conclusion and Recommendation

• 5.1 Introduction
• 5.2 Summary of findings
• 5.3 Conclusion
• 5.4 Recommendation
• Bibliography
• Appendix (i)

Chapter One

1.0 Introduction

1.1 Background 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.

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

• It has open my knowledge on how to carryout research problem.
• It is important to everybody especially those who are into banking business that is the customers and bankers
• Helps in adding to the stock of existing literatures in banking and the adequate survival of commercial banks.
• 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

Several factors posed constraints to this research work during the conduct of my research:

1. I was not satisfied with the behaviour and uncooperative attitudes of staff of CBN in supplying the needed materials.
2. Due to financial constraints which as a student I am facing, I was unable to travel to other places in search of materials.
3. Some of the printed questions were misplaced or not returned to me .it is also worthy to mention that the school library lacks the needed secondary data on this topic which made me to resort to the internet and private textbooks, of which are very costly.
4. I did not find it easily getting the bank officers to listen to my interviews and those willing to give me audience were not going deep to considering the implication of revealing banks secrets.

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.

Chapter Five

5.0 Summary, Conclusion and Recommendations

5.1 Introduction

This is another major subdivision of the main body of this work, in this chapter the policy is a major policy frame work of the central bank in the conduct, stabilization and regulation of the economy.

5.2 Summary Of Findings

First and foremost, this topic “the impact of monetary policies on the liquidity and profitability of commercial banks in Nigeria” is of high significance to the CBN and to the economy. The government in addressing the unhealthy economic situation such as inflation, monetary variables or aggregates. hence, it thus constitute the major policy thrust of government in the realization of various macro-economic aggregates and objectives via the monetary policy instruments such as open market operations, discount rates, reserve requirements etc. in deed, the policy is a major policy framework of the central bank in the conduct, stabilization and regulation of the economy.

Despite the objectives of this policy, there exist some hiccups, drawbacks in the implementation such as under developed money and capital market, informal financial sector, high liquidity position of banks etc.

Secondly, in reviewing the literature related to this work, various authors works and books were been reviewed such as Kanu, Osubor, Anyanwu, various journals, periodicals from various libraries etc. too numerous to mention. All these authors are senior lecturers from federal polytechnic Nekede, Owerri and Imo state library., the books, year of publications and publishers are been listed in the reference section.

Thirdly, in collecting data, the sources came from primary and secondary sources also personal interview and questionnaire were both used as methods of data collection and the data in the questionnaire were been presented and analysis was conducted through the use of percentage and it was interpreted and presented using tables.

Finally, this last section includes summary, conclusion and recommendations and references were listed using the APA Style [American Psychological Association] alphabetically. Also, in the cause of conducting this research, the letter of the questionnaire and questions including the table representation of the calculations made in the analysis section was to be located in the appendix.

5.3 Conclusion

In conclusion, it has been seen from the analysis of results that the impact of monetary policy including its instruments is effective. Also, the drawbacks of monetary policy over the years have been proved to be positively militating against the effective implementation of these policies.

Hence, it has also been proved from the analysis of the questionnaire that monetary policy has not been regularly implemented some years back. In concluding, monetary policy can be used to control, regulate and stabilize the financial sector of the economy.

5.4 Recommendations

It could be observed from the going that in spite of the various polices designed and applied by the government and monetary authorities to solve the macro-economic problems.

1. There is need to establish a strong macro-economic policy framework that is consistent in both design and implementation similarly set orals policy must be relate to the macro-framework such that economic growth takes place in a state of relative stability.
2. Banks should explore other investments avenues that are not under stiff control by the monetary authorities to enhance their profit positions.
3. Policy measure imposed by the government should be properly implemented. I believe that Nigeria have enough manpower and as such the central bank of Nigeria [CBN] should get up enough monitoring team to monitor the activities of the banks and ensure their strict adherence to the policy measures.
4. The monetary measures issued by the CBN should be given time to stabilize for its objectives to be realized in other words, continuous changes in policies should stop and polices allowed to operate over the years to test and determine its effectiveness.
5. The government and the central bank of Nigeria [CBN] should gear up towards a rapid development of the financial environment especially the money market by increasing demand as seen in our analysis.
6. Finally, for a higher degree of effectiveness and efficiency, there is the need to modify some of the tools to reflect and respond more rapidly to the local economic conditions.

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