The Effect of Monetary Policy on the Financial Performance of Deposit : Current School News

The Effect of Monetary Policy on the Financial Performance of Deposit Money Banks in Nigeria

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The Effect of Monetary Policy on the Financial Performance of Deposit Money Banks in Nigeria.

ABSTRACT

This research examined the effect of Monetary Policy on the financial performance of Deposit Money Banks in Nigeria. Specifically, the study establishes the effect of Central Bank Rate (CBR) on the financial performance of Deposit Money Banks, it also establish the effect of Reserve Ratio Requirement on the financial performance of Deposit Money Banks.

The methodology used for data collection was mainly from primary source which included questionnaire and personal interview in order to have knowledge of Monetary Policy on the financial performance in UNION BANK PLC.

Information was also gathered from the secondary source which includes literature review of previous research, consultation of textbooks and internet. Simple percentage and Chi-square statistical method were used to analyse the data collected before reaching conclusion.

The findings of the research indicated that deposit money bank policy affect banking operations in its bid to regulate money supply in the economy with particular reference to deposit and credit creation.

The recommendation is that while bank size was found to lead to better financial performance, it is important that banks understand the source of its funds and the costs associated with the funds.

TABLE OF CONTENTS

Title Page          i

Declaration          ii

Certification           iii

Dedication                      iv

Acknowledgements      v

Abstract       vi

Table of Contents           vii

List of Tables           ix

CHAPTER ONE: INTRODUCTION

  • Introduction 1
  • Background to the study 3
  • Statement of the problem 6
  • Objectives of the study 8
  • Research questions 8
  • Statement of hypothesis 9
  • Significance of the study 9
  • Justification of the study 9
  • Scope of the study 10
  • Definitions of terms 10

CHAPTER TWO: LITERATURE REVIEW

  • Introduction 13
  • Conceptual Framework 13
  • Theoretical Framework 32
  • Literature on Subject Matter 37

CHAPTER THREE: RESEARCH METHODOLOGY

  • Area of Study 41
  • Research Design and Sources of Data 41
  • Study Population and Determination of Sample Size 43
  • Instrumentation 43
  • Procedure for Data Collection and Data Analysis 44
  • Limitation of the Study 45

CHAPTER FOUR: DATA ANALYSIS, FINDINGS AND DISCUSSION

  • Introduction 46
  • Data Analysis and Findings 46
  • Test of hypothesis 58
  • Discussion of findings 58

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

  • Summary 60
  • Conclusion 60
  • Recommendations 62
  • Suggestions for Further Research 63

References             64

Appendix       71

INTRODUCTION

The financial sector is mainly significant to formal activities that are relevant to the economic activities in Nigeria. This has made it mandatory for monetary policy instruments to become crucial in driving the activities of the Nigeria economy.

It has therefore been well observed in Nigeria as well as all other developing countries that prudent monetary policies are the key stone to effective regulations as well as supervision for the growth of any country’s banking Industry.

By effective manipulation of monetary instruments, the growth rate in the supply of money can be influenced by the Central bank in many ways, namely, availability of credit interest rate level and availability of liquidity from the banking sector.

All these can affect the investment, production, consumption of individual as well as government spending. Omankhanlen (2014).

Business cycle evenness, financial crisis prevention, rate of interest stabilization in the long run, the rate of exchange in real terms has recently been identified as objectives supplementary to monetary policies due to global financial crisis weaving which overwhelmed both emerging and developed economies of the world (Mishra and Pradhan, 2013).

Nigerian banks generally believe that there is great risk in lending to the manufacturing and agricultural sectors of the economy, hence, their apathy in giving credit to these sectors of the economy, though these sectors hold the key to the development of the economy especially in employment and foreign exchange generation.

A solid and stable financial sector is essential to make a well-functioning national economy and ensure balance liquidity within the economy. Appropriate liquidity management is essential to foster economic growth. Though, to achieve economic stability proper uses of fiscal and monetary policies are required.

Despite establishing regulatory agencies and monetary policy committees, Nigerian banks have actually been deterred in creating adequate liquidity and additional credit for the sustenance of the entire economy.

The Central Bank of Nigeria (CBN) over the years, have instituted various monetary policies to regulate and develop the financial system in order to achieve major macroeconomic objectives which often conflict and result to distortion in the economy.

Although, some monetary policy tools like cash reserve and capital requirements have been used to buffer the liquidity creation process of deposit money banks through deposit base and credit facilities to the public.

Monetary policy remains a critical tool in stimulating the growth and stability of financial institution in most developing economics. In Nigeria, the objectives usually include promoting monetary stability. Strengthening the external sector performance and generating a sound financial system that will support increased output and employment.

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 in an economy to achieve some specific macro-economic policy objectives (Ndugbu and Okere, 2015).

Monetary policy according to Anyanwu (2009) involves a deliberate effort by the monetary authorities (the Central Bank of Nigeria) to control the money supply and credit conditions for the purpose of achieving certain broad economic objectives.

REFERENCES

Adebiyi M.A. and Babatope O.B. (2009) International Framework, Interest Rate Policy and the financing of the Nigerian Manufacturing Subsector. A paper presented at the African Development and Poverty Reduction (the Macro Linkage) Conference at Lord Charles Hotel Somerset West, S.A. Oct 13-15.

Akomolafe, K. J., Danladi, J.D., Babalola, O. & Abah, A.G. (2015) Monetary policy and Deposit Money Banks’ performance in Nigeria. Public Policy and Administration Research, 5 (8), 158-166.

Albertazzi U. & L. Gambacorta (20) Bank profitability and the business cycle. Working paper 601, Bank of Greece.

Al-Tamini, H. and Hassan, A. (2015) Factors Influencing Performance of the UAE Islamic and Conventional National Banks. Department of Accounting and Finance and Economics, College of Business Administration, University of Sharjah.

Amacher, R. C. & Ulbrich, H.H. (2006). Principles of macroeconomics. South Western: Publishing Co. Cincinnati.

Anyanwu, J. C. (2009). Monetary economics: Theory, policy and institutions. Onitsha: Hybrid Publishers Ltd.

Athanasolglou P.P, Brissimis S.N. & Delis M.D. (2010). Bank specific, Industry specific and macroeconomic determinants of Bank profitability . Working Paper 25, Bank of Greece.

Central Bank of Nigeria (2013). Monetary policy. CBN Publication

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