The Quantitative Techniques Of Monetary Control And Its Impact In The Lending Policies Of Banks

Project and Seminar material for Banking and Finance

Project and Seminar material for Banking and Finance


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 Statement of Problems
  • 1.3 Objective of the Study
  • 1.4 Statement of Hypothesis
  • 1.5 Objective of the Research
  • 1.6 The Scope of Study
  • 1.7 Limitation
  • 1.8 Definition of Terms

Chapter Two

2.0 Literature Review

  • 2.1 Introduction
  • 2.2 The Concept of Quantitative Techniques of Monetary Control
  • 2.3 Monetary cost control
  • 2.4 Directional control of credit
  • 2.5 Control of the Volume of Money
  • 2.6 The Impact of Quantitative Control in the Lending Policies of Banks
  • 2.7 Co-ordinating the Quantitative

Chapter Three

3.0 Methodology

  • 3.1 Population Used
  • 3.2 Data Analysis Technique
  • 3.3 Instruments for Data Collection
  • 3.4 Sources of Information

Chapter Four

4.0 Presentation and Analysis of Data

  • 4.1 Data Presentation

Chapter Five

5.0 Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • Bibliography

Chapter One


Introduction

1.1 Background Of The Study

According to Wrightman, (1976) monetary policy is a deliberate effort by the monetary authorities (the CBN) to control the supply and direction of money and credit with a view of achieving broad economic objectives.

Chrsity and Roden (1977) define monetary policy as central bank’s effort to regulate the economy by managing the supply cost and availability of money and credit.

Miller (1979) also defines monetary policy as the combination of measures designed to regulate the value, supply and cost of money in an economy in consonance with the level of the economy activity. Although fiscal policy has traditional been recommended to developing countries as the main plant of macroeconomic management principally due to the encumbrances, which are deemed to constrain the effectiveness of monetary policy.

Yet, monetary policy has assumed increasing prominence is the country due to the efficiency of the free market system.

The central bank decree of 24, 1991 and the banks and other financial institutions decree 25, 1991 requires that central banks in formulating and executing monetary policy to make proposals or consult with the president of the federal republic of Nigeria. The country’s monetary policy must therefore have political social and economic under tone. 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 2c of CBN decree 24 of 1991 as amended stated that one of the principal “objectives” of the banks (CBN) shall be: –
To promote monetary stability and a sound financial system in Nigeria”. The management of any economy entails articulating a well – meaning strategies as well as devising various policies, and techniques that will ensure efficient utilization of the resource and this techniques are used to control the volume, cost and direction of credit in the economy.

Management Of The Monetary Tools
These tools / techniques can be classified into quantitative and qualitative tools. The CBN will, therefore endeavour to keep broad money growth as within the target that is consistent with the assumed levels of GDP, reflection rate and accretion to external reserves.

In broad terms, the objectives of monetary policy in Nigeria have been: –

  1. Achievement of price stability
  2. Achievement of high level of unemployment
  3. Achieving of high level of economic growth
  4. Balance of payments equilibrium
  5. Exchange rate stability

To achieve these objective the CBN regulates the money stock by expanding or contracting it where necessary influences the interest rates by makings it cheaper or more expensive depending on the prevailing economic conditions and the existing monetary policy trust of government.


1.2 Statement Of Problems

The problems of bank distress

The distress that hit the banking industry in the fifties, early sixties and nineties has eroded the confidence which then public had in the industry. Although the government and the Apex bank base done a to restore this confidence a sizeable percentage of the public still keep a lot of money out of banking system.

The result is that the ability of the commercial banks to create money is restricted.


1.3 Objective Of The Study

The purpose of this study, in a nutshell are basically to maximizing economics freedom in the economy.

Emphasize on sustainable economic growth in the economic in order to raise the standard of living, followed by adequate employment of expanding out put for a constant or decreasing input.

  1. To maintain a long – term balance of our international payment.
  2. To maintain a good employment opportunities for individuals in the economy;
  3. To maintain stability in prices of goods or service.

1.4 Statement Of Hypothesis

In order to carry out this research work the researcher guided herself with the following hypothesis: –

  1. Quantitative techniques of monetary control has a significant impact in the lending policies of banks;
  2. The operations of the commercial banks are affected by the monetary policy instruments and so there is positive impact is created in the economy.
  3. The implementation of monetary policy instruments by commercial bank is encouraging.

1.5 Significance Of The Research

On completion of this research the findings will help the bank to a ascertain the impact of the quantitative techniques on the lending policies of banks.

It will also help forward looking banks anticipate the need for change. This research will also help banks to find solution of erasing problems of banks distress and also ensure stable prices and maintain a single digit inflation rate.

This research will enable the CBN to actively support the effort of the federal government to enhance real economic growth and reduce the level of unemployment and poverty by ensuring increased flow of credit to productive sectors.


1.6 The Scope Of Study

The quantitative techniques of monetary control and its impact in the lending policies of bank is a very divert one. For want of time and space, we will restrict our study to some of the direct control measures such as open market operation.

Bank rate, reserve ratio, interest selling on deposit and call for special deposit vie a vis, its impact in the lending policies of bank.


1.7 Limitations

Most of the tools of monetary, management by the central bank discussed in the preceding sections of this chapter may prove inappropriate for development in African.

In fact, they were designed to carter for the economic needs of development nations and as such inapplicable in our developing society, which is regimented by industrial, and infrastructural lacks.

The central banks function of acting as a lender of last resort for the commercial bank require the effective functioning of the open market operations and the discount rate tools.

Secondly low interest on governments securities, the interest on government securities used for open market operation is relatively lower than what other private sector investment can earn.

The low reforms on government securities therefore discourage people from participating actively in the purchase of government securities in the open market operation.

Thirdly, high liquidity positions of bank, many banks in Nigeria possess high liquidity. Therefore the CBN credit policy often has little or no effect on their ability to expand credit.


1.8 Definition Of Terms

MRR:

Minimum Rediscount Rate

OMO:

Open Market Operation

QTMC

Quantitative Techniques of Monetary Control

CBN:

Central Bank of Nigeria

BD:

Bank Distress: a situation where a bank has been mismanaged and called no longer, meet its obligation, such banks normally have problems of illiquidity, poor earning and non – performing assets.

Regulation:

is the purpose for the supervision and control of the banks in Nigeria by CBN and BOFID Too.

  1. Promote and maintain adequate and reasonable banking service for the public;
  2. Ensure high standard of conduct and management throughout the banking system

Chapter Five


Summary, Conclusion And Recommendation

5.1 Summary

This research work is promoted by the researcher’s special interest on the quantitative techniques of monetary control and its impact in the lending policies of bank.

The banking system through its operations plays an important part in the nations economy and therefore, monetary policy instruments and its implementation by the commercial banks is another feasible way of controlling the economy activities.

Monetary policy is a major economic stabilization weapon which involves measures designed to regulate and control the volume cost, availability and direction of money and credit and economy to achieved some specified macro in Nigeria is the Central Bank of Nigeria.

The CBN plays a supervisory role on commercial banks in accordance with CBN Act of 1959.
However, it must be noted that the positive impact of the quantitative techniques in lending policies of Bank has created on the entire economy through financial sector is quite significant.


5.2 Conclusion

The researcher believes that a through work has been done on the research topic. Quantitative techniques of monetary control and its impact in the lending policies of bank.

The following conclusion have therefore been drawn: –

  1. Quantitative techniques of monetary control tools are those technique used to control the volume cost and direction of credit in the economy;
  2. Lending policies of development banks are well designed and therefore should be applied to the last to achieve effective lending rate of growth and development in the economy.
  3. The implementation of this techniques is encouraging

5.3 Recommendation

The intention of monetary authorities in creating the monetary policy is to enable them control the volume of money supply and credit through the regulation of commercial banks operations.

This policy, if well administered and implemented will enhance the attainment of some economic objective that will be favourable to economic development.


The Quantitative Techniques Of Monetary Control And Its Impact In The Lending Policies Of Banks


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