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THE
IMPACT OF MONETARY POLICIES ON NIGERIA COMMERCIAL BANK
(A
CASE STUDY OF ZENITH BANK P.L.C)
ABSTRACT
The economic policies or interpretation
of such policies has always left a key question unanswered, how much
authorities do such policies allow the banks to use their powers to lend, to
made remarkable impact in the overall economic situation in the country.
Like in banks in most developing
economic (Nigeria inclusive) the role of providing advice and issuing financial
directives lies in the ministry of finance, the Nigeria deposit insurance
corporation and the central bank of Nigeria. The federal government relies on
these institution for the proper functioning of banks through their
monetary policies, which could be concretionary or expansionary. This
invariably affects the commercial banks etc. hence the need for this study.
The Zenith Bank Plc has been chosen in
this regard and except where specified individually, banks becomes the
terminsnolyg. In this study in depth study is made on how the Apex Banks, the
CBN’s financial monetary policies affectS commercial banks.
Chapter one of the study deals on the
back ground, study of the problems. Statement of hypothesis and what
significant of the study is. Second chapter studies the literature used.
The chapter three emphasis on the
techniques and sample collection and questionnaire chapter four presentation of
data analysis of the data and the interpretation of finding the last chapter
five elucidates on the findings and solutions were proffered. Hence given rise
to conclusion.
TABLE OF CONTENT
Abstract
Table of contents
CHAPTER ONE
Introduction
1.1
Background of the study
1.2
Statement of problems
1.3
Objective of the study
1.4
Significance of the study
1.5
Statement of hypothesis
1.6
Scope and limitation of study
1.7
Definition of terms
CHAPTER TWO
Literature review
2.1
2004 monetary policy and the introduction of N25 billion capital base.
2.2
Monetary and credit policy measure in 2012
2.3
Frame work for determine bank cost of funds
2.3.1
National saving certificate
2.3.2
Federal government development stocks
2.3.3
Minimum balance on loan saving account
2.3.4
Money Transfer
2.3.5
Policy on SMES
2.3.6
CBN rediscounting and refinancing
2.3.7
Characteristics of promissory note
2.3.8
Paid up capital requirement
2.3.9
Moral suasion
2.3.10
Improvement in the payment system
2.4
Universal banking practice
2.5
Basic principles of commercial banks credit
2.6
Credit policies of commercial banks
2.7
Factors that determine credit policies in Nigeria
2.8
Capital position of the banks
2.9
Liquidity and profitability
2.10
Impact of CBN monetary policy on banks profit.
CHAPTER THREE
Research design and methodology
3.1
sample survey method
3.2
Population sample for the study
3.3
Sources of data collection
CHAPTER FOUR
Data presentation
4.1
Data analysis, interpretation
4.2
List of hypothesis
CHAPTER FIVE
Findings conclusion and recommendation
5.1
Summary of findings
5.2
Conclusion
5.3
Recommendations
Bibliography
Appendix
Questionnaires
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Most banking activities are directed
towards lending as credit has remained the backbone of banking operations. It
is due to the fact that it provide the bulk profits.
Today, its vital role in commercial
banking activities lie in the direct it has on total economic growth and
business development. Every year the (CBN) central bank of Nigeria being the
monetary authority that is solely responsible for the insurance of guidelines
policies and the interpretation of such, comes up with economic measure roles
and regulation under which the bank in the country operate. Such policies
direct the use of funds from depositors, stockholders, and creditors in order
to control the size of loan portfolio thereby determining the general
circumstances under which it is appropriate to make an advance. The monetary
policies also aim at aiding the banks to maintain a sound financial and banking
system promote confidence in sustenance of reasonable banking services for
public as well as ensuring a high standard of conduct and professionalism in
banking industry. These rules and regulations are contained in monetary policy
circular being issued by the central bank at the beginning of every year.
The techniques of monetary policies
could be broadly divided into two namely:
Direct and Indirect.
While the direct approach has been used
very extensively in the more developed market economic, the indirect approach
predominate in the less developed economics such as Nigeria. Nonetheless, both
technology aim at influence the cost and availability of banking system’s
credit. The direct system techniques involves fixing of credit ceiling and
interest weight rates the Apex Bank (CBN) for compliance by banks, while the
direct approach achieves the same objective through the financial market. The
most potent instrument of the indirect monetary policy technique is the open
market operation (OMO). It is worthy of note that effort aimed at introducing
incorrect monetary and credit-control anchored on the use of OMO are themselves
a parts of the given receipts which they would present to the gold smith on
withdrawal.
According to Paul Sammuelson, (1990-20)
money has an anonymous quality making are dollar just as good as another. In
relation to the above the goldsmiths recognized that not all depositors of gold
when they come back at the same time to collect them. These receipts signified
time to collect them. These receipts signified debt and were transferable. Out
of the gold deposited, the goldsmith started to lend out part of them and
charge a fee for these services.
Hence the evolution of our bank
lending. As development continued to surface in the society it become possible
for financial institution to emerge and act as bank where people go to deposit
their money and other precious metals for future withdrawals and most
importantly lending money to the users of fund. Bank lending has ever since
then been on the increase with different hierarchy of operations.
1.2
STATEMENT OF THE PROBLEM
Monetary policies are organized and
established system of administration of loan, and its disbursement have so many
loopholes which undermine its base exercise and guidance. It is a statement
that need not be overemphasis.
These policies being one out of measure
used by that nation ability to mobilize and channel its scare resources
to different sectors of the economy. Therefore when these economic policies are
seemingly deficient, it poses a big question which needs to be answered. How
much authority do such policies allow the banks to use their powers to lend to
make remarkable. Impact on the overall economic positions on themselves (hence
profit). A major conclusion has been that effective implementation through the
financial intermediation will serve a machinery for economic progress and
profit enhance ability.
Apart from the explicit policies which
are extremely imposed by the CBN implicit rules and regulations are also
developed by the bank to guide their internals operations.
But these guidelines are developed from
the mature of banking industry. Generally, these policies have three
implications. One to the banks to the borrowers and to the economy. Emphasis is
laid here on the implication it has on the banks.
Banks lending dates bank to the days
when the hold smiths accepted deposits from the merchants, mostly gold and
valuable for safe keeping. At first such establishment were simply like ware
house. Depositors were central bank of Nigeria towards the maintenances of
prudent banking have fare reading effects on banking and the Zenith bank Plc in
particular. The question therefore arises what effect do these policies have on
commercial banks, customers and the economy? Are these policies and conditions
too strength as to constitute a problem to lending?
Do commercial banks ensure full
compliance to the monetary policies circular?
Are there government objective
for introducing these rules and regulations being achieved?
The CBN’s guidelines, rules and
regulation normally contained in the monetary policy circular have always been
aimed at achieving targeted goals. The commercial banks which are expected to
operated to operate under the guidance of the regulations of the CBN have also
their own internal lending policies objectives to achieve. All these pose a lot
of problems to the bank’s credit decisions worthy of note is the CBN directive
that lending should not exceed and foreign transfer to individual should not
exceed N1,000,000 and corporate bodies N5,000,000. this has made of possible
for banks to have loan or credit dispersal and control money laundering. Based
on the above a performance evaluation of the effect of these policies is
inevitable to finding out the resultant effect on banks activities using the
2011 and 2012 monetary policies.
1.3
OBJECTIVES OF THE STUDY
The purpose of this research work is to
undertake an in depth analysis of the effect of the various guidelines
introduced for banking operations by the Apex monitoring authority on the banks
using Zenith bank Plc as case study. Other objective include:
i.
Assessment of the extent to which commercial banks have been able to comply
with statutory allocation of credit to the different sectors of the economy
through the CBN credit to the different sectors of the economy through the CBN
guidelines.
ii.
Whether the commercial banks have been able to maintain the credit
ceiling and how far interest rate deregulation contain in policy has been able
to affect the volume of banks lending.
iii.
To test the rigidity of the policies and its effects on the borrowing
customers.
iv.
To draw outlines of credit offered by these banks and their appraisal
process highlighting the environmental influence that impinge on the monetary
policy practices in Nigeria.
v.
Lending is of paramount importance in the economy hence the research work will
investigate lending policies and practical of the banks system in the country
funding out how realistic they are in line with the nations economic settings.
Making recommendation where
necessary and suggesting ways to ensure effective implementations of these
policies to achieve the desired objectives.
1.4
SIGNIFICANCE OF THE STUDY
Government over the year have made
inspiring calls to all citizens be self reliant and in a bid to achieve this
loan to rural borrowers have been increased to 50% and as well sectored
allocation (SMES) small scale and medium enterprises as well as according
priorities to key sector of the economy.
This research work being an appraisal
of the impact of monetary policies on Nigeria commercial banks (Zenith)
precisely will enable the apex bank restructure and relax the assumed stringent
measure in order to make it possible for necessary assistance from banks.
However, the primary motive for any
corporate business is for profit optimization and the maximization of
shareholders health banks are no exception. From this research, they will
realize that proper implementation of monetary policies can ensure higher
profitability of the banking industry. To borrowing customers, they will deduce
some act inherent in loan defaulting an what are the causes of high interest
rates and their remedies. This implies that of they continue borrowing funds
without paying back, this banking industry may in future become liquid which
will result in high interest rate and subsequently high cost of borrowing fund.
It will also constitute guide towards future design and formulation of lending
policies by the monitoring authority through the implementation of recommended
measure.
Finally, this work will be of immense
help to other university undergraduates who will like to writ on this topic as
well as exposing to monetary policies available to the commercial banks in
Nigeria.
1.5
STATEMENT OF HYPOTHESIS
For a sound and valid investigation,
the under listed hypothesis have been formulated and the validity will be
tested in chapter four using appropriate statistical data.
HYPOTHESIS I
Ho: The implementation of CBN policies
have shown adverse effect on commercial banks.
Hi: The commercial banks have shown
fall compliance with CBN guidelines on the allocation of credit to the high
priority sector.
HYPOTHESIS II
Ho: The commercial banks have shown
fall compliance with CBN guidelines on the allocation of credit to the high
priority sector.
Hi: The commercial banks have shown
fall compliance with CBN guidelines on the allocation of credit to the high
priority sector.
HYPOTHESIS III
Ho: There is no significant difference
between the volume of lending by commercial banks in interest rate regulated
economy and one of interest rate deregulation.
Hi: There is no significant difference
between the volume of lending by commercial banks in interest rate regulated
economy and one of interest rate deregulation.
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