The Impact Of Monetary Policy In Nigeria Banking Institution

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The Impact Of Monetary Policy In Nigeria Banking Institution


Abstract


This study investigates the impact of monetary policy on Banking sector performance in Nigeria. This is to ascertain the factors that influence the banking sector performance using bank’s deposit liabilities as proxy for bank performance. The study period covers 36 years from 1970 to 2006, using selected indicator and employing the OLS regression technique. We tested the null hypothesis of no significant relationship between bank deposit liabilities and chosen indices of banking performance, namely Exchange Rate (EXR), Deposit Rate (DR) and Minimum Discount Rate (MDR). Results showed that overall; monetary policy has a significant effect on the banks deposit liabilities. Main while, on individual basis, we discovered that Deposit Rate (DR) and Minimum Discount Rate (MDR) had a negative influence on the banks deposit liabilities in Nigeria, whereas Exchange Rate (EXR) had a positive and significant influence on the banks deposit liabilities in Nigeria. We conclude therefore that monetary policy plays a vital role in determining the volume of bank’s deposit liabilities in Nigeria. We recommended that government and its monetary authorities should strive to create a conducive environment for banking sectors to grow in the country by packaging appropriate monetary policies that would guarantee and enhance growth and development of the banking sectors in Nigeria.


Chapter One


Introduction

Monetary policy is a programme of action undertake by the monetary authorities, generally the central bank, to control and regulate the demand for and supply of money with the public and the public and the flow of credit with view to achieving predetermined macroeconomic goals

Currently, monetary policy has been taken to be a very vital measure in controlling the Nigeria economy this is one of the principal functions of the central bank of Nigeria (CBN). The CBN caries out this responsibility on behalf of the federal Government of Nigeria through a process outlined in the central Bank of Nigeria Decree 24, 1991 section 8 sub sections 1 and 2, the Governor shall keep the president informed of the monetary and banking policy pursued or intended to be pursued the Bank. The president after due consideration may, in writing, direct the bank as to monetary and banking policy pursued or intended on the board which shall forthwith take all steps necessary or expedient to give effect there to


1.1 Background of the Study

The federal Government have seen economy as a result of unstable exchange rate. Is cobbling, and have decided to improve and maintain to strengthening balance of payment and maintenance of stable domestic price level.


1.2 Statement of the Study

In this report, 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

The objective of this study is to ascertain know the high rate of employment.


1.4 Research Question

For the purpose of this study the following question will guide this work.

  1. How does C.B.N implement their monetary policy
  2. How does the C.B.N uses the monetary policy in controlling the price stability of the state.
  3. How does monetary policy increase the growth of the economic productivity.

1.5 Research Hypothesis

For the purpose of the work, the following hypothesis will be tested.

Null hypothesis; if the impact of monetary affect the banking institution

Alternative hypothesis; if the impact of monetary policy does not affect the banking institution.


1.6 Significance of the Study

This project proposal is significant in the following ways:

  1. To prospective study who wants to know more on the impact of monetary policy in the banking sector.
  2. The study will be relevant to those who work in the bank to help them know how impact monetary policy in banking sector.
  3. To the Government on how to plan to improve the impact of monetary policy in banking institutions.

1.7 Delimitations and Limitation

This study will cover areas of academics, business, Government and banks


1.8 Limitation

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.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary

The research work tries to investigate the effect of monetary policy on commercial banks in Nigeria. Theories relating to the subject matter were vigorously analysized and examined. From these theories, we developed our model which was used to sought and investigate the impact of such variables as Exchange Rate (EXR), Deposit Rate (DR) and Minimum Discount Rate (MDR) on Deposit Liabilities of Commercial Banks (DL) vis-à-vis the performance of banks in Nigeria.

The estimated result shows that Exchange Rate (EXR) is positively related to the Deposit Liability of Commercial Banks (DL). In fact, Exchange Rate (EXR) alone explain and account about 78% of the changes in Deposit Liability of Commercial Banks (DL) in Nigeria. This means that theoretical prediction that there exist a positive relationship between Exchange Rate (EXR) and Deposit Liability of Commercial Banks (DL) is true and indicates that Exchange Rate (EXR) is a strong explanatory variable of Banks Deposit Liabilities of Commercial Banks (DL) in the Nigerian economy.

However, the result also shows that Deposit Rate (DR) and Minimum Discount Rate (MDR) have a negative relationship with Deposit Liability of Commercial Banks (DL). This is inconsistent with economic apriori expectation given the negative co-efficient. This means that Deposit Rate (DR) and Minimum Discount Rate (MDR) have not really influenced Banks Deposit Liabilities during the period under study. This may be attributed to poor administration of monetary policies in the country which have lead to low savings and investments to stimulate growth and development of the banking sectors in the Nigerian economy.


5.2 Recommendations

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.


5.3 Conclusion

In compliance with the objectives of this study, we have been able to examine, determine and analyze the impact of banking sector performance and economic development in Nigeria. Also identify the channels through which monetary policy influences the performance of banking sector in the Nigerian economy by examining the changes in banks deposit liabilities and its results in the changes of monetary policy and also articulate policies that will enhance the effectiveness of monetary policy on commercial banks performance in the banking sectors in the Nigerian economy.

After a thorough empirical investigation of the problem of the study, it was discovered that monetary policies affect performance of the banking sectors in the Nigerian economy.

The negative coefficients of Deposit Rate (DR) and Minimum Discount Rate (MDR) shows that appropriate and effective economic and monetary policies have not been put in place to promote growth and development in the banking sectors in the Nigerian economy. From the findings in the study, it was revealed that Exchange Rate (EXR) significantly influences the performance of Commercial Banks Deposit Liabilities through the mechanism of interest rate.

Following the scope of this present study from 1970-2006; there is need for further research in this area to be extended from 2006 to 2014 for a more better result on this sector of the Nigerian economy. Since this study could not cover up to 2014.


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