The Effect of Government Policy on Commercial Bank Lending Ability
Chapter One
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To ascertain the Effect of lending policy on commercial bank ability to grant loan.
- To assess the effect of government policy on inflation rate in the country.
- To ascertain if monetary policy will, in any way reduce inflation in the country.
- To ascertain how government policy on commercial bank affect its ability to grant loan
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
Monetary policy being a major economic stabilization weapon involves measures taken by the Central Bank to regulate and control the volume, cost, availability and direction of money and credit in an economy to achieve some specified macroeconomic policy objectives and to counter all undesirable trends in the economy. According to the United States Federal Reserve Board, (2006), monetary policy is the process by which the Government, Monetary Authority or Central Bank of a country controls the supply of money, availability of money and cost of money or interest rate to attain a set of objectives oriented towards the growth and stability of the economy. Monetary policy represents a combination of measures design to regulate and control volume of money and credits in order to achieve certain macroeconomic objectives. CBN Annual Report (2004) defined monetary policy as a measure introduce by the monetary authority on monetary targeting and the mopping up of excess liquidity, aimed at ensuring a noninflationary macroeconomic environment. Similarly, CBN Annual Report (2009), refers to it as specific action taken by the Central Bank to regulate the value, supply and cost of money in the economy with a view to achieving Government.s macroeconomic objectives. In a nutshell, the aims of monetary policy are basically to control inflation, maintain healthy balance of payments position in order to safe guard the external value of the national currency, and promote adequate and sustainable level of economic growth and development. Credit on the otherhands refers to the status of being trusted to pay money back to somebody who lends it to one (Oxford Advanced Learners Dictionary, 1998). It means a sum of money lent by a bank (Central Bank) to someone (Federal Government) who agrees to pay back with interest at a future date. Credit to the Federal Government enable it finance her budget deficits and carry out developmental projects in the country. Nwankwo (2000) in Olokoyo (2011) argued that credit constitutes the largest single income-earning asset in the portfolio of most banks, thus explained why banks spend enormous resources to estimate, monitor and manage credit quality. This is understandably, a practice that impact greatly on the lending behaviour of banks as large resources are involved. Commercial banks perform three major functions, namely, acceptance of deposits, granting of loans, and the operation of the payment and settlement mechanism. In terms of flow of funds, the banking system, clearly dominates and has an important impact on the level of economic development. Adedoyin and Sobodun (1991) assert that “lending is undoubtedly the heart of banking business. Therefore, its administration requires considerable skill and dexterity on the part of the bank management”. Chizea (1994) asserted that “there are certain aspects of fiscal and monetary policies which could affect the decision of the discerning and informed public to patronize the bank and the lending behaviour of commercial banks. Paramount amongst these measures is what he called the interest rate disincentive. Interest rates have been so low in the country that they are negative in real terms”. As inflation increased, the purchasing power of money lodged in deposit accounts reduce to the extent that savers per force pay an inflation tax. There is also the fear that the hike in interest rates would increase inflation rates and make a negative impact on the rate of investment. Usman (1999) also supported this position by stating that “a major regulation affecting commercial banks lending in Nigeria is the restriction on the amount of interest they are allowed to pay on deposits in an effort to attract additional depositors and the interest they charge on their fund based activities” Usman (1999), commenting on the factors that affect commercial banks’ lending behaviour said that, “the sound and viable functioning of commercial banks in Nigeria is adversely affected by the choice of certain policy instruments for the regulation of banking operations. Such instruments include a rigidly administered interest rate structure, directed credit, unremunerated reserve requirements and stabilizing liquidity control measures like the stabilization securities of the past”.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to the effect of government policy on commercial bank lending ability
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
DATA ANALYSIS
The data collected from the respondents were analyzed in tabular form with simple percentage for easy understanding.
A total of 133(one hundred and thirty three) questionnaires were distributed and 133 questionnaires were returned.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the effect of government policy on commercial bank lending ability in Nigeria. 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 challenges of government policy on commercial bank lending ability in Nigeria
Summary
This study was on the effect of government policy on commercial bank lending ability in Nigeria. Four objectives were raised which included: To ascertain the Effect of lending policy on commercial bank ability to grant loan, to assess the effect of government policy on inflation rate in the country, to ascertain if monetary policy will, in any way reduce inflation in the country, to ascertain how government policy on commercial bank affect its ability to grant loan. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of Union bank, Akwa Ibom state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers, accountants, customer care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies.
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