The Impact of Monetary Policy in Nigeria Banking Industry
CHAPTER ONE
Objective of the study
The objectives of the study are;
- Examine the impact of banking sector performance on economic development in Nigeria.
- Identify the channel through which monetary policy influences the performance of banking sector in Nigeria.
- Examine what changes in profitability resulted from changes in monetary policy.
- Articulate tentative policies that promote the performance of the banking sector in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
A hand full of literature exists on the relationship between monetary policy and commercial banks performance, but above these, various researchers have adopted the following measures: Odufalu (1994) based his study mainly on the effect of monetary policy on banks profitability in Nigeria. He developed a model of bank profitability, which had profit before interest and tax as the dependent variables. While the independent variables include, average interest rate on savings and time deposits, prime lending rate for loans and advances, treasury bills rate, total deposit, liquidity ratio, cash and income. He also used pooled data for only twelve commercial banks from 1986 to 1990 periods and estimated the model using the ordinary least square (OLS) estimation method. Ogunleye (1995) in his own submission criticized and questioned Odufalu’s use of certain variables in his model, for example, lending rate is one aspect of interest rate and thus, making its inclusion among the explanatory variables questionable. Uchendu (1995) criticized Odufalu’s use of twelve banks as sample size out of a total of one hundred and twenty banks on the basis that the sample size was small to make any meaningful conclusion. Using data ranging from 1970 to 1993 and a sample size of a total of sixty commercial banks, he investigated the impact of monetary policy on the performance of commercial banking sector in Nigeria. He developed a profit function employing three different measures of profitability namely: interest earning rate, rate of return on assets and rate of return on capital as the dependent variables and six independent variables which include: interest rate (saving or lending), exchange rate, concentration ratio (a variable measuring efficiency unit labour cost). Estimating using OLS method, his result showed that variations in interest rates are a major source of changes in commercial banks performance. Other factors include bank reserves; oligopolistic market power of the three big commercial banks and staff remuneration exhibited a positive impact on commercial bank profitability. Viability variations in exchange rate showed negative effects, which managerial efficiency had no clear influence. Nyong (1996) undertook a very outstanding study different from all other previous studies earlier reviewed. He used two-ways causality test between profitability and capital investment in banks. It was hypothesized that an increase in lending rate as well as the spread between the lending rate and deposit rate leads to increase in profit. However, an increase in excess liquidity may or may not lead to increase in bank profitability. An increase in excess reserve may lead to increase in profit in a condition of strong demand for loanable funds. It may lead to a fall in profit in a condition of weak demand and hence constrain the ability of banks to make profits. Rising labour costs could increase profit only if matched with productivity in line with the marginal productivity theory because generally increase in labour cost should decrease bank profit as it is a cost to the banking sector. This implies that profit is dependent on capital, investment, which provides the means for the purchase of equipment and machinery and the adoption of modern technology for improve performance, thus a resultant increase in profit.
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.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the impact of monetary policy in Nigeria banking industry. First bank, Lagos forms the population of the study.
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.
TEST OF HYPOTHESIS
H0: there is no impact of banking sector performance on economic development in Nigeria.
H1: there is impact of banking sector performance on economic development in Nigeria.
H02: there is no channel through which monetary policy influences the performance of banking sector in Nigeria.
H2: there is channel through which monetary policy influences the performance of banking sector in Nigeria.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of monetary policy in Nigeria banking industry. 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 monetary policy in Nigeria banking industry
Summary
This study was on the impact of monetary policy in Nigeria banking industry. Three objectives were raised which included; Examine the impact of banking sector performance on economic development in Nigeria, identify the channel through which monetary policy influences the performance of banking sector in Nigeria, examine what changes in profitability resulted from changes in monetary policy and articulate tentative policies that promote the performance of the banking sector in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from first bank in Lagos state. Hypothesis was tested using Chi-Square statistical tool (SPSS).
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