The Influence of Monetary Policies on Liquidity and Profitability of Commercial Banks in Nigeria a Case Study of First Bank Plc Mubi Branch
CHAPTER ONE
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 first bank PLC mubi branch. Other objective include:
- 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.
- 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.
- To test the rigidity of the policies and its effects on the borrowing customers.
- 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.
- 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.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
This chapter aims at equipping us with the theories of the supply of monetary policy. It also identifies monetary policy over the years. The chapter is also divided into three sections. The first is the theoretical literature on monetary policy; the second section is the empirical study of monetary policy and the limitations of previous literature of the study.
THEORETICAL LITERATURE
The theories of monetary policy, which received considerable attention in the literature, are the Keynesian theory of monetary policy and the classical theory of monetary policy.
THE CLASSICAL THEORY OF MONETARY POLICY
The fundamental principle of the classical theory is that the economy is self-regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP or output, which is the level of real GDP that is obtained when the economy’s resources are fully employed. While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP, self-adjustment mechanisms exist within the market system that work to bring the economy back to the natural level of real GDP. The classical doctrine—that the economy is always at or near the natural level of real GDP is based on two firmly held beliefs: Say’s Law and the belief that prices, wages, and interest rates are flexible Say’s Law. According to Say’s Law, when an economy produces a certain level of real GDP, it also generates the income needed to purchase that level of real GDP. In other words, the economy is always capable of demanding all of the output that its workers and firms choose to produce. Hence, the economy is always capable of achieving the natural level of real GDP. The achievement of the natural level of real GDP is not as simple as Say’s Law would seem to suggest. While it is true that the income obtained from producing a certain level of real GDP must be sufficient to purchase that level of real GDP, there is no guarantee that all of this income will be spent. Some of this income will be saved. Income that is saved is not used to purchase consumption goods and services, implying that the demand for these goods and services will be less than the supply. If aggregate demand falls below aggregate supply due to aggregate saving, suppliers will cut back on their production and reduce the number of resources that they employ. When employment of the economy’s resources falls below the full employment level, the equilibrium level of real GDP also falls below its natural level. Consequently, the economy may not achieve the natural level of real GDP if there is aggregate saving. The classical theorists’ response is that the funds from aggregate saving are eventually borrowed and turned into investment expenditures, which are a component of real GDP. Hence, aggregate saving need not lead to a reduction in real GDP. Consider, however, what happens when the funds from aggregate saving exceed the needs of all borrowers in the economy. In this situation, real GDP will fall below its natural level because investment expenditures will be less than the level of aggregate saving.
Aggregate saving, represented by the curve S, is an upward-sloping function of the interest rate; as the interest rate rises, the economy tends to save more. Aggregate investment, represented by the curve I, is a downward-sloping function of the interest rate; as the interest rate rises, the cost of borrowing increases and investment expenditures decline. Initially, aggregate saving and investment are equivalent at the interest rate, i. If aggregate saving were to increase, causing the S curve to shift to the right to S′, then at the same interest rate i, a gap emerges between investment and savings. Aggregate investment will be lower than aggregate saving, implying that equilibrium real GDP will be below its natural level.
Flexible interest rates, wages, and prices. Classical economists believe that under these circumstances, the interest rate will fall, causing investors to demand more of the available savings. In fact, the interest rate will fall far enough from i to Figure 1 to make the supply of funds from aggregate saving equal to the demand for funds by all investors. Hence, an increase in savings will lead to an increase in investment expenditures through a reduction of the interest rate, and the economy will always return to the natural level of real GDP. The flexibility of the interest rate as well as other prices is the self-adjusting mechanism of the classical theory that ensures that real GDP is always at its natural level. The flexibility of the interest rate keeps the money market, or the market for loanable funds, in equilibrium all the time and thus prevents real GDP from falling below its natural level. Similarly, flexibility of the wage rate keeps the labor market or the market for workers, in equilibrium all the time. If the supply of workers exceeds firms’ demand for workers, then wages paid to workers will fall so as to ensure that the work force is fully employed. Classical economists believe that any unemployment that occurs in the labor market or in other resource markets should be considered voluntary unemployment. Voluntarily unemployed workers are unemployed because they refuse to accept lower wages. If they would only accept lower wages, firms would be eager to employ them.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
It is important to ascertain that the objective of this study was to ascertain The influence of monetary policies on liquidity and profitability of commercial banks in Nigeria a Case study of first bank PLC mubi branch.. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenge the influence of monetary policies on liquidity and profitability of commercial banks in Nigeria a Case study of first bank PLC mubi branch
Summary
This study was on the influence of monetary policies on liquidity and profitability of commercial banks in Nigeria a Case study of first bank PLC mubi branch. Six objectives were raised which included: . 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, 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, to test the rigidity of the policies and its effects on the borrowing customers, 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, 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 and Making recommendation where necessary and suggesting ways to ensure effective implementations of these policies to achieve the desired objectives. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected staff of first bank in Mubi. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
In the course of study, the researcher examined the contributions of central bank to the development and effective operation of banking industry.
The researcher through restricted their study to first bank, but made some reference on the activity of other commercial banks. The researcher examined the numerous ways in which the profit made by banks can be affected by monetary policy and the way commercial banks respond positively to the monetary measures in Nigeria. The general conclusion that emerges from this study is that monetary policy measures that are recently adopted in Nigeria is controlling the volume of commercial banks credit and also the profit that will be made from the available credit. This is possible because the interest rate will charge as profit when lending is stipulated in the monetary policy guideline of the central bank of Nigeria (CBN).
5.3 RECOMMENDATIONS
- For effective operation of monetary policy measures in Nigeria, the central bank of Nigeria (CBN) should be granted full autonomy on its monetary functions. It is also in this that appropriate measures could be adopted in view for the development of financial markets.
- To create effective policy in the financial market, policy should be made more public so that any areas of the banking sector should be informed on the new banking measures.
- Another aspect that will help to develop, our banking sector today, is that the central bank should be strong in executing policy to enable the financial market know the type of law that is biding them, because a policy without a execution remains a floating policy. So for this it can achieve the main desire of its objective.
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