Impact of Monetary Policy on the Profitability of Nigerian Banks
CHAPTER ONE
OBJECTIVE OF THE STUDY
Generally the objectives of monetary policy includes.
- The control of inflation and maintenance of relative price stability.
- The promotion of a fast and desirable rate of economic growth and development
- The maintenance of a low level of unemployment
- The maintenance of a healthy balance of payment position for the country in order to safeguarded the external value of the natural currency.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Several writers have investigated the monetary policy/ commercial bank performance relationship. In this chapter the researcher wants to review some relates literature to the area of study.
Knight (1970) studies the effect of federal reserve system policies on the banking system and found that the variation in free reserves has pronounced effect on bank loans and investment expansion ability.
Odafule (1994) aimed at analyzing the effect of monetary policy on the profitability of banks in Nigeria he developed a bank profitability modeling which the reduced form had profit before tax and interest as the dependent variables and average interest rates as explanatory variable. Then use data for only twelve commercial bank. He estimated the mode by the method of ordinary least square (OLS) The landing rates positively affected the profitability of his sample banks.
According to Meyer (1986) commercial banks maximize profit subject to a solvency and liquidity constraint. These constraints are greatly influenced by central bank stand on monetary and banking policies.
Furthermore, Boyd and Runkle (1993) said that another measures that is likely to have impact on banks profitability is managerial ability to grant loan and also to provide for loan losses and total loan granted by the industry. He said that an increased provision depicts in efficiency in the management and a full in bank profit.
Finally according to Nyong (1994) liquidity and capital adequacy considerations are crucial commercial for a proper assessment of the performance of commercial banks particularly in the context of failure prevention and maintenance of safety and soundness in the system.
EVOLUTION APPLICATION OF MONETARY POLICY IS INSTRUMENT IN NIGERIA
Over the years government has been intervening in the working of free market economy. This is done because uncontrolled economy cannot allocate resources effectively and equitably.
However government has always used two tools in its market intervention activities namely monetary and fiscal polices. But the researcher is only concerned with monetary policy in this study.
In executing monetary policy the authority employ some tools referred to as monetary policy instruments. These instruments are chosen according to their relevance to policy objective. The instruments includes.
- Minimum rediscount rate: This is also called bank rate and it is the rate of interest the central bank charges the commercial banks. If the central bank want on expansionary policy it will raise the MRR. On the hand if the authority want a contractionary policy it will reduce the interest rate thereby encouraging borrowing.
- Open market operation: It involves buying and selling of government securities in an open market also it may be employed when an expansionary or contractionary policy is being pursed.
- Legal reserve requirement: The central bank usually require commercial banks to reserve certain amount with it. This is done in order to control and influence their liquidity and credit operations respectively.
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
Research design and methodology simply means the different patterns and methods a researcher uses in administering and colleting data for a research work.
This is sequel to the fact that this study is meant to examine the concept of monetary policy with reference to the definition objectives evolution uses and advantages and disadvantages is monetary policy within the country (Nigeria)
RESEARCH DESIGN
The research design refers or deals with various ways data are being collected and how the subject matter of the study will be brought into focus. It is also a plan or strategy for conducting the research and how they can be employed within the frame work of the research setting for on the topic in question.
CHAPTER FOUR
FINDINGS
Based on the study the research was able to male some findings which informed the followings.
The dominant factor influencing commercial banks profitability are interest rates bank reserves exchange rates and capital deposit ratio. Changes in official exchange rates however diminish commercial banks profit.
CHAPTER FIVE
CONCLUSION
From the findings of the study the researcher can now make the following conclusions.
The commercial banks profit function is influence by.
- Federal reserves
- The interest rate variation
- Changes in official exchange rates
- Bank reserves
Therefore the degree of operation of commercial banks on the monetary policy to make profit depends o the regulatory authority.
RECOMMENDATION
In this study the research discovered many inherent problems below are some recommendations suggested towards solving the problem.
The problem of instability in the nations banking system has created enormous problems fro the conduct and implementation of monetary policy. In talking these problem government should ensure increase in capital investment in banking for promoting improved profit performance.
Furthermore the monetary authority are faced with the problem of inability to impose capital ad adequacy standards and weakness in decrees employing it to take drastic measures against erring banks.
In this area measures should be taken by government to redress the obvious weakness in the decree. There is also need for banks to adjust their portfolio of assets and liabilities in order to meet the profitability objective under the solvency and liquidity constraint.
REFERENCES
- Orij J (2000) Elements of Banking Enugu
- Nyong M.O (1996) Economics & Financial Review CBN Publication
- CB.N Briefs (1997) Service
- Okeke A.O (1979) Foundation Statistics for Business London High Megre System Ltd
- Bed H.L (1968) Practical Banking Advances London UBS Publishers
- Ezeje E.O (1979) Project Writing Enugu Adel Publishers
- Okorie A.U (1995) Economics and Financial Review CBN Publication
- CBN Briefs 1997 Service
- Nyony M.O (1996) Economics and Financial Review CBN Publication
- Orji J (2002) Banking and Finances Principles Policies and Institution Enugu
- Splashmedia Organization
- Odoh Nick N (2004) Introduction to Public Finance
