The Impact of Monetary Policy on the Profitability of Banks in Nigeria
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.
- Increasing the flow of credit to the priority sector of economy especially the agricultural and manufacturing sector.
- The mobilization of increased domestic savings to facilitate domestic capital formation.
Protecting local form unfavorable foreign competition and smugglers reducing indebtedness abroad and generating more revenue especially form the non-oil sector of the economy.
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.
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)
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.
In addition the interest rate variation had a positive and significant relationship with all measures of profit.
However the opinion of other majority indicates that monetary policy of government has some effect on the profitability of commercial banks.
Commercial banks performance is of great essence to the stability of the financial system and the overall performance of the economy.
By findings stable and realistic monetary policy is therefore necessary for a profitable commercial banking industry in Nigeria.
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.
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