IMPACT OF MONETARY POLICIES ON NIGERIA COMMERCIAL BANK
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IMPACT OF MONETARY POLICIES ON NIGERIA COMMERCIAL BANK
THE IMPACT OF MONETARY POLICIES ON THE NIGERIA COMMERCIAL BANK ABSTRACT
The interpretation of economic policies has always left a critical point unanswered: how much authority does such policies allow banks to utilise their lending capabilities to make a significant impact on the general economic condition in the country.
The ministry of finance, the Nigeria Deposit Insurance Corporation, and the Central Bank of Nigeria, like banks in other emerging economies (including Nigeria), play the duty of offering advise and issuing financial directions.
The federal government relies on these institutions to ensure that banks operate properly through their monetary policies, which can be contractionary or expansionary. This invariably has an impact on commercial banks, etc., hence the need for this research.
The Zenith Bank Plc has been chosen in this regard, and banks, unless otherwise indicated, become the terminsnolyg. In this study, an in-depth examination of how the Apex Banks, the CBN’s financial monetary policies effect commercial banks is conducted.
The first chapter of the paper covers the background and analysis of the problems. The hypothesis and the significance of the study are stated. The second chapter investigates the literature employed.
The third chapter focuses on procedures, sample collecting, and questionnaires. The fourth chapter presents data analysis and interpretation of findings, while the fifth chapter elaborates on the findings and remedies. As a result, the conclusion.
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Credit has remained the backbone of banking operations, hence the majority of banking activities are focused on lending. It is because it provides the majority of the profits.
Today, its importance in commercial banking activities stems from the direct impact it has on overall economic growth and corporate development. Every year, the (CBN) central bank of Nigeria, as the monetary body solely responsible for the insurance of guidelines policies and their interpretation, develops economic measure responsibilities and regulations under which banks in the country operate.
These rules guide the use of funds from depositors, investors, and creditors to control the growth of the loan portfolio, thereby specifying the broad circumstances under which an advance is appropriate. Monetary policies also aim to assist banks in maintaining a healthy financial and banking system,
increase public confidence in the provision of acceptable banking services, and ensure a high standard of conduct and professionalism in the banking business. These rules and regulations are outlined in the central bank’s monetary policy circular, which is issued at the start of each year.
Monetary policy techniques can be broadly classified into two types:
Direct and indirect communication.
While the direct strategy has been widely adopted in more established market economies, the indirect approach is more prevalent in less developed economies such as Nigeria. Nonetheless, both technologies try to impact the cost and availability of credit in the banking sector.
The direct system tactics entail the Apex Bank (CBN) fixing loan ceilings and interest weight rates for compliance by banks, whereas the direct approach achieves the same goal through the financial market. The open market operation (OMO) is the most powerful instrument of the indirect monetary policy strategy.
It is worth noting that the efforts aimed at creating inaccurate monetary and credit-control mechanisms based on the use of OMO are themselves components of the given receipts that they would submit to the goldsmith upon withdrawal.
According to Paul Sammuelson (1990-20), money has an anonymous aspect that makes one dollar equal to another. In connection to the foregoing, goldsmiths recognised that not all gold depositors return at the same time to receive their gold. These receipts indicated that it was time to collect them.
These receipts represented debt and could be transferred. The goldsmith began to lend out a portion of the gold deposited and collect a fee for these services.
As a result, our bank lending has evolved. As civilization progressed, it became possible for financial institutions to arise and operate as banks where people could store their money and other precious metals for future withdrawals, as well as lending money to finance users. Since then, bank lending has increased with a distinct hierarchy of operations.
1.2 STATEMENT OF THE PROBLEM
Monetary policies are an organised and established system of loan administration, and its disbursement has numerous gaps that weaken its fundamental practise and guidance. It is a remark that does not need to be emphasised.
These policies are one indicator of a country’s ability to mobilise and channel scarce resources to various sectors of the economy. When these economic policies appear to be insufficient, it raises a major question that must be addressed. How much authority do such policies give banks to use their lending abilities to make a significant impact on the general economic position on themselves (therefore profit)?
One significant conclusion has been reached: effective implementation through financial intermediation will act as a mechanism for economic progress and profit enhancement capability.
Apart from the formal policies enforced by the CBN, the bank develops implicit norms and regulations to guide their internal operations.
However, these principles are the result of the banking industry’s maturation. In general, these policies have three consequences. One for the banks, one for the debtors, and one for the economy. The emphasis here is on the implications for banks.
Bank lending can be traced back to the days when hold smiths received deposits from merchants, primarily gold and valuables, for safekeeping. Initially, such establishments were merely warehousing. Depositors were directed by the Central Bank of Nigeria towards responsible banking practises,
with far-reaching consequences for banking and, in particular, Zenith Bank Plc. The question then becomes, how do these rules affect commercial banks, customers, and the economy? Are these policies and conditions so stringent that they pose a barrier to lending?
Do commercial banks assure complete adherence to the monetary policy circular?
Are the government’s goals for implementing these laws and regulations being met?
The CBN’s instructions, rules, and regulations, which are generally found in the monetary policy circular, have always been geared at attaining certain objectives. Commercial banks that are supposed to operate under the supervision of the CBN’s regulations have their own internal lending policies goals to attain. All of this complicates the bank’s lending determinations.
The CBN directive that loans and foreign transfers to individuals should not exceed N1,000,000 and corporate organisations should not exceed N5,000,000. This has enabled banks to disburse loans or credit while also controlling money laundering. Based on the foregoing, a performance evaluation of the impact of these measures on bank activities using the 2011 and 2012 monetary policies is unavoidable.
1.3 OBJECTIVES OF THE STUDY
The goal of this research is to conduct an in-depth investigation of the impact of the Apex monitoring authority’s numerous rules for banking operations on banks, utilising Zenith Bank Plc as a case study. Other goals include:
i. Assessment of the extent to which commercial banks have been able to comply with the statutory allocation of credit to the various sectors of the economy through the CBN guidelines.
ii. Whether commercial banks were able to sustain the credit ceiling and how far interest rate deregulation contained in policy affected the volume of bank lending.
iii. To assess the rigour of the policies and their impact on borrowing clients.
iii. Outline the loans given by these institutions and their appraisal procedure, noting the environmental influences that affect Nigeria’s monetary policy practises.
v. Because lending is so important in the economy, the research will look into the lending policies and practises of the country’s banking system to see how realistic they are in relation to the country’s economic circumstances.
Making recommendations as needed and suggesting measures to guarantee that these policies are implemented effectively in order to accomplish the desired goals.
1.4 THE SIGNIFICANCE OF THE STUDY
Over the course of the year, the government has issued encouraging calls to all residents to become self-sufficient, and in order to accomplish this, loans to rural borrowers have been boosted to 50%, as well as sectored allocation (SMES) small scale and medium businesses, as well as allocating priorities to critical sectors of the economy.
This research, which is an assessment of the influence of monetary policies on Nigerian commercial banks (Zenith), would allow the apex bank to reorganise and relax the presumed strict measures in order to allow for necessary help from banks.
However, the primary goal of every corporate business is to maximise profits for shareholders, and health banks are no exception. They will learn from this research that good monetary policy implementation may assure the banking industry’s profitability. Borrowing clients will deduce some act inherent in loan defaulting and what the causes of high interest rates are and how they might be remedied.
This suggests that if they continue to borrow funds without repaying them, the banking industry may become liquid in the future, resulting in high interest rates and, as a result, a high cost of borrowing funds.
It will also serve as a reference for the monitoring authority’s future design and development of lending policies through the execution of recommended measures.
Finally, this paper would be of great use to other university freshmen who wish to write on this issue, as well as exposing them to the monetary policies available to Nigerian commercial banks.
STATEMENT OF HYPOTHESIS 1.5
The following hypotheses have been developed for a good and legitimate study, and their validity will be examined in chapter four using relevant statistical data.
I. HYPOTHESIS
Ho: The CBN’s policies have had a negative impact on commercial banks.
Hi: Commercial banks have fallen short of CBN standards for credit allocation to high-priority sectors.
II. HYPOTHESIS
Ho: Commercial banks have fallen short of CBN requirements on credit allocation to high-priority sectors.
Hi: Commercial banks have fallen short of CBN standards for credit allocation to high-priority sectors.
III. HYPOTHESIS
Ho: There is no significant difference in the volume of lending by commercial banks in an interest rate-regulated economy and one that is not.
Hi: There is no discernible difference in the volume of lending by commercial banks in an interest rate-regulated economy and one with interest rate deregulation.
1.7 DEFINITION OF TERMS
fiscal policy:
Is a policy that deals with the monitoring authorities’ discretionary regulation of the money supply in order to achieve defined economic goals.
PROFITABILITY
This is the excess of an enterprise’s profits over its expenses.
POLICY ON LENDING:
The establishment of directives and other uses of funds from stockholders, depositors, and others to control the composition and size of the loan portfolio, as well as the circumstances under which it is appropriate to make a loan. It is specifically designed and is contained in current monetary policy.
THE CENTRAL BANK
The Apex bank in Nigeria, to which the oversight of establishing guidelines and monitoring banking operations has been given.
ECONOMIC SYSTEM
The supervisory and regulatory bodies comprise the Nigerian financial system.
i. The financial system
ii. A financial institution that is not a bank.
The financial markets are iii. Anyanwokoro (1999:150) is a fictional character.
BANK
A bank is a corporate organisation that has been licenced by the central authority to operate as a bank after meeting the necessary procedures and standards. Savings and current accounts must follow the rules of the constitution.
LENDING
A facility provided by a bank to its clients or non-customers on the condition that the principal and interest will be returned when due.
EFFECTIVE FINANCING
A question of financing that maximises the banker’s development goals.
INTERMEDIATION IN FINANCE
This is the mechanism by which financial institutions take extra household deposits and lend them to deposit-deficient industries.
NDIC
The Nigeria Deposit Insurance Corporation was established under Decree No. 2 of 1998 and began operations in March 1989 as a primary corporation responsible for providing insurance cover to depositors’ deposits in licenced banks and, when necessary, granting assistance to such banks in financial difficulty.
The NDIC generally controls distressed banks to ensure that depositors are fairly reimbursed.
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