The Effect of Monetary Policies of the Central Bank of Nigeria (CBN) on Deposit Money Bank

The Effect of Monetary Policies of the Central Bank of Nigeria (CBN) on Deposit Money Bank

CHAPTER ONE

OBJECTIVE OF THE STUDY

The study is embarked upon to see;

How many policy affect banking operations in its bid to regulate money supply in the economy with particular reference to deposit and credit creation.
How far the Central Bank of Nigeria has gone in its achievement of regulating money supply.
If the monetary policy has improved the industry as a whole.
The importance of monetary tools in achieving the desired control through bank operations.
The impact of monetary policy on banking operation both positively and negatively.

CHAPTER TWO

LITERATURE REVIEW

Introduction

This chapter reviews various theories that inform economic development and their macroeconomic effects, seeks to locate the place of our focus subject and its relevance to the finance discipline. A critical review of empirical studies is undertaken and an effort to evaluate contributions is made and pertinent knowledge gaps identified.

Conceptual Framework

Concept of Monetary Policy

Ezenduyi (2004) defines monetary policy as the policy which involve the adjustment of money stock (through different means) interest rate exchange rate as well as expectation to influence the level of economic activities and inflation in desired direction, targeting as the mapping up of excess liquidity armed at ensuring a non-inflationary macro-economic environment. Monetary policy can be defined as the instruments at the disposal of the monetary authorities to influence the availability and cost of credit/money with the ultimate objective of achieving price stability as demonstrated by Ibeabuchi, (2012). Onouorah, et al (2016) defined monetary policy as a rule and regulation imposed by the monetary authority into controlling the money supply inflation and achieves economic growth. Onyeiwu (2012) defines monetary policy as a technique of economic management to bring about sustainable economic growth and development has been the pursuit of nations and formal articulation of how money affects economic aggregate. Chigbu & Okonkwo (2014) held that monetary policy generally refers to the deliberate efforts of the government to use changes in money supply, cost of credit, size of credit and direction of credit to influence the level of economic activities to achieve desired macroeconomic stability in an economy.

Richard (1999) stated that the instrument tools of monetary policy have been classified broadly in two categories traditional and non-traditional quantitative instrument. Monetary policies, as adopted in Nigeria, have four broad objectives.

To maintain a high level of employment (full employment): Full employment means employment of labour, plant and capital at a tolerable capacity to achieve the set goals of national economic policy aimed at combating recession and economic depression.
To maintain stable price level:Price level stability goal is related in an important sense to the control of inflation refers to a situation of sustained and rapid increase in the general level of prices, however, generated (Nnanna, 2006). According to Ibeabuchi (2012), inflation reduces real disposable income and consequently the purchasing power of money.
To maintain the highest sustainable rate of economic growth: This means both quantitative and qualitative increase in the total quantity of goods and services produced in the economy annually. Nnanna (2006) opined that economic growth is said to be achieved in a country in a situation where there is an increase in the income position of the citizens of the country and also a corresponding increase in the amount of goods and services which a given quantity of money can buy.
To maintain the highest equilibrium in the balance of payments: A country’s balance of payment may be in total equilibrium of there exists between total payments and total receipts, that is, the avoidance of larger or chronic deficit or surplus in the balance of payments

CHAPTER THREE

RESEARCH METHODOLOGY

Area of Study

The area of study is Union Bank of Nigeria Plc. which was established in 1917 as a bank of the colonial bank. The bank was opened in February that year principally to service international trade of the companies and assists the colonial government. In 1925, the bank was renamed

Barclays Bank (Dominion Colonial and Overseas) in 1954. In 1969 it changed its name again to Barclays Bank of Nigeria limited in compliance to the banking decree enacted them which made it mandatory for bank like other foreign business operating in the country, to register in Nigeria. The bank earnings per share increased from, 96 kobo to 142 kobo in 2002. While the banks deposit base amounted to N85.241 billion as against N8.06 billion in 2000, total assets of the bank increased from #1,049.7 billion in 2015 to N1,252.7 billion in 2016.

CHAPTER FOUR

DATA ANALYSIS, FINDINGS AND DISCUSSION

Introduction

In this chapter, the data collected from questionnaire are presented, analysed and tabulated. Fifty questionnaires were prepared and distributed to the respondent drawn from lower and senior staff of Union Bank Plc.

The analysis were carried out using simple percentage method, the hypothesis will be analyse using the chi-square based on the analysis of the relevant questions.

CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

Summary

The general objective of this study was to determine the effect of monetary policy on the financial performance of Deposit Money Banks in Nigeria. Other specific objectives were to; establish the effect of Central Bank Rate (CBR) on the financial performance of Deposit Money

Banks and establish the effect of Reserve Ratio Requirement on the financial performance of Deposit Money Banks.

A sample is a portion of the population selected for study. It is very important to select sample size that will give sufficient fair representation of the population. There are two basic way of making the sample size decision, one is by rule of thumb and the other one is by calculated method. In this research work, the rule of the thumb was used for this research where 50 workers of total population were selected as the sample size. The sample is also made up of senior and junior staff of the Union Bank Plc. This test will provide answers to the questions raised in the research problem. The questionnaires were administered based on the non-random selection of the persons as contained in the sample. This was done in such a way as to get the desired result. The questionnaire contains nineteen fifty (50) questions. . The formulated hypotheses were tested using chi-square (X²) test statistics which measures the significance of the difference between the observed set of frequencies.

Conclusion

The study examined the effect of monetary policy tools on the financial performance of Deposit Money Banks in Nigeria. The study found that monetary policy tools have no significant effect on the financial performance of Deposit Money Banks in Nigeria. Thus, the study concludes that monetary policy tools do not influence the financial performance of Deposit Money Banks in Nigeria.

The study assessed the effect of Treasury Bill Rate (T-Bill Rate) on the financial performance of Deposit Money Banks in Nigeria. The results showed that T-Bill Rate had a positive effect on the financial performance of Deposit Money Banks. Thus, the study concluded that T-Bill rates have a positive but insignificant affect the financial performance of deposit money banks in Nigeria.

The study examined the effect of Central Bank Rate on the financial performance of Deposit Money Banks in Nigeria. The results showed that Central Bank Rate had a negative effect on the financial performance of Deposit Money Banks. The study therefore concluded that CentralBank Rate has no significant affect the financial performance of Deposit Money Banks in Nigeria.

The study also assessed the effect of Cash Reserve Ratio on the financial performance of Deposit Money Banks in Nigeria. The results showed that Cash Reserve Ratio had a negative effect on the financial performance of Union Bank. Thus, the study concluded that Cash Reserve Ratio does not affect the financial performance of Deposit Money Banks in Nigeria.

The study examined the effect of bank size on the financial performance of Union Bank of Nigeria. The results showed that bank size had a weak positive effect on the financial performance of Deposit Money Banks. Thus, the study concluded that bank size affects the financial performance of firms in Nigeria.

Recommendations

Based on the findings made in this study, the following recommendations have been made to address some of the problems discovered:

The study recommends that Deposit Money Banks should put more emphasis on the internal factors to financial performance. ii. These internal factors include capital adequacy, asset quality, management efficiency, earnings ability and liquidity management.
Monetary policy tools effect will be handled by the management through risk management policies for the bank.
The study further recommends that while bank size was found to lead to better financial performance, it is important that banks understand the source of its funds and the costs associated with the funds.
Findings emanating from the empirical analysis of this study proffered that monetary authority; the Central Bank of Nigeria (CBN) should adjust the monetary policy rate by reducing the cash reserve ratio which will increase liquidity to enable the Deposit Money Banks to discharge their lending and investment duties effectively to the public.
It is important that monetary and fiscal policies be complimentary and not working at variance. The co-intergration tests which show a disquilibrium by 41% which suggest that the level of cohesion in harmonizing policies are not adequate. The CBN and the Ministry of finance should work more closely to objectively articulate policies in the same economic direction.

Suggestions for Further Research

The study suggests that more studies be done in this area focusing on all banks in Nigeria as well as other financial institutions such as microfinance that also give loans. This can be done by focusing on all Deposit Money Banks in Nigeria and microfinance institutions. Studies should also be conducted on the topic using fairly longer time periods (more than 5 years) and smaller time intervals (say quarterly) of data collection as such studies may be useful in showing the trends as well as the long terms relationship between monetary policy and financial performance of Deposit Money Banks in Nigeria.

The study also recommends that further studies explore the relationship between monetary policy and financial performance of Deposit Money Banks with categories of small, medium and big banks. As has been noticed from the research data, bigger banks exhibited larger Net Interest Margins as compared to smaller banks.

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