This study,ROLE OF GOVERNMENT MONETARY POLICIES IN THE PERFORMANCE OF FINANCIAL SECTORS IN NIGERIA contains concise information that will serve as a framework or guide for your project work. The project study is well-researched for academic purposes and are usually provided in complete chapters with adequate References.
Interpretation of government economic policies has always left a key question unanswered. How much authorities do such policies allow the financial institutions use their powers to lend, to made remarkable impact in the overall economic situation in the country?
Just like financial institutions in most developing economic (Nigeria inclusive), the role of providing advice and issuing financial directives lie solely on the government institutions (Ministry of finance, the Nigeria deposit insurance corporation (NDIC) and the Apex bank, the Central Bank of Nigeria (CBN). The federal government relies on these institutions for the proper functioning of financial sector through their monetary policies, which could be concretionary or expansionary. This invariably affects the financial sector of the country’s performances. Hence the need for this study.
In view of this, the Zenith Bank Plc as one of the financial institution in the country has been chosen for this study. In this regard and except where specified individually, banks becomes the terminology. This study will examine in depth how the Apex Banks, the CBN’s monetary policies affects the performance of this bank and the financial sector at large.
Chapter one of the study examined the background, statement of problems, statement of hypothesis, scope, significance and justification of this study. The second of this study however focused the Conceptual Clarification, Theoretical framework and the literature on the subject matter.
The chapter three was on the techniques and sample collection and questionnaire used for the study.
In Chapter four, the data was analyzed, presented and findings of the study and interpretation on these finding were carries out.
Chapter five elucidates on the findings and solutions were proffered. Hence given rise to conclusion.
TABLE OF CONTENTS
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 OBJECTIVES OF THE STUDY
1.4 STATEMENT OF THE HYPOTHESIS
1.5 SIGNIFICANCE OF THE STUDY
1.6 SCOPE OF THE STUDY
1.7 DEFINITION OF TERMS
2.1 CONCEPTUAL CLARIFICATION
2.2 THEORETICAL FRAMEWORK
2.2.1 TYPES OF MONETARY POLICY
2.2.2 AIMS AND OBJECTIVES OF MONETARY POLICY
2.2.3 INSTRUMENTS OF MONETARY POLICY
2.2.4 FISCAL POLICY
2.2.5 DIFFERENCES BETWEEN MONETARY AND FISCAL POLICY
2.3 EMPIRICAL LITERATURE
2.3.1MONETARY POLICY STRATEGY IN NIGERIA
3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 DESIGN OF STUDY
3.2 SAMPLE SURVEY METHOD
3.3 AREA OF STUDY
3.4 POPULATION SAMPLE FOR THE STUDY
3.5 SOURCES OF DATA COLLECTION
3.6 VALIDITY OF THE INSTRUMENT
3.7DISTRIBUTION AND RETRIVAL OF THE INSTRUMENT
4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
To ensure a well-functioning national economy and a balance liquidity within the economy, a solid and stable financial sector is essential. To foster economic growth, appropriate liquidity management is very essential. Though, to achieve economic stability proper uses of fiscal and monetary policies are required. Despite government establishing regulatory agencies and monetary policy committees, the financial sector (Nigerian banks) have actually been deterred in creating adequate liquidity and additional credit for the sustainability of the Nigeria economy.
A strong financial sector also helps to sustain an economy against external shock that may arise from fall in external capital flow. A strong and well-developed financial sector is needed to achieve a sustained growth Aurangzeb (2012). Also, Akomolafe (2014) opined that sustainable economic growth is often associated with countries with strong financial sector. The recent incidence of banking and financial crises in the world, and its aftermath on the world economies gives credence on the importance of the sector on the performances of an economy. More importantly, the banking sector also serves as the avenue through which the monetary policies of the government are carried out.
Various monetary policies to regulate and develop the financial system in order to achieve major macroeconomic objectives which often conflict and result to distortion in the economy have been instituted by the Apex Bank, Central Bank of Nigeria (CBN) over the years. Some monetary policy tools from CBN like capital requirements and cash reserve have been used to buffer the liquidity creation process of banks through deposit base and credit facilities to the public.
For sustainable growth and stability of financial institution in most developing economics, monetary policy remains a critical tool. In Nigeria, the objectives usually include promoting monetary stability.
1.1 BACKGROUND OF THE STUDY
Monetary policy is a major economic stabilization weapon which involves measures designed to regulate and control the volume, cost, availability and direction of money and credit in an economy to achieve some specific macro-economic policy objectives as it strengthens the external sector performance and generates a sound financial system that will support increased output and employment.
According to Anyanwu (1993), monetary policy involves a deliberate effort by the monetary authorities (the Central Bank of Nigeria) to control the money supply and credit conditions for the purpose of achieving certain broad economic objectives as well as determination of certain targets on monetary variables. Some of the CBN monetary policy objectives are consistent with each other, while others are not. A good example is the objectives of price stability which often conflicts with the objectives of interest rate stability and high short run employment.
Monetary policy is for stabilization and it involves the use of monetary instruments to regulate or control the volume, cost, availability and the direction of money and credit in an economy to achieve some specific macroeconomic policy objective.
Economic activities are not directly affected by monetary policy instruments; they work through their effects on the financial markets. It affects economic activities through its effects on available resources in the banking sector. The banking industry play vital roles and functions that cannot be over-emphasized in the development process.
For instance, when the economy experiences inflationary pressure, the monetary authority can use contractionary monetary policy to stabilise the price level. This may be done by increasing the reserve ratio. This will then reduce the amount available to commercial banks for the purpose of credit facility. This will eventually reduce the pressure on prices in the economy through a reduction in the volume of money in circulation. On the other hand, if the objective is to increase the aggregate demand in the economy, the reserve ratio may be reduced.
Hence, the monetary authorities use monetary instruments to keep inflation and deflation in check. Generally, Ahumada and Fuentes (2004) identified two important channels through which monetary policy affect the functioning of the banking sector: the traditional interest rate channel and the credit channel.
Imperfections in the financial market, such as asymmetric information, that induce a contraction of the quantity of credit when the central bank imposes a restrictive monetary policy.
The level of compliance with the monetary policy directives by the banks determines the effectiveness of monetary policies in achieving its targeted objectives as the policies sometimes go against their profit interests. A business organization mostly depend upon the profit which the organization is able to earn for existence, growth and survival. Profitability increases the value of shareholders to a considerable extent. When a business organization is able to maintain its profit year after year, such organization is said to be profitable, which will in turn contribute to the economic development of the nation thereby providing tax revenue to government and additional employment for the citizens. This will also help in contributing to the dividends of the investors, which will also improve people’s living standard.
For instance, commercial banks invest customers’ deposits in various short term and long term investment outlet to make profit, however core of such deposits are used for loans. Hence, the more loans and advances they extend to borrowers, the more the profit they make Solomon (2012).
Whenever the government through the CBN embarks on contractionary monetary policies, it reduces the available resources with the banks. This consequently reduces their ability to make profits. On the other hand, expansionary monetary policies would have an opposite effect.
However, when the treasury bills are purchased through the open market operation by the monetary authority, there would be increase in the available resources, and consequently, banks’ profits. It is important to analyse the impacts of monetary policies on the banking sectors’ performance, given the impacts of the financial sectors on the overall economic activities in the economy. Identifying the effects of monetary policy correctly is necessary and important for efficient policy making.
In a developing country like Nigeria, the banking industry is dominated by the commercial banks. The CBN is responsible for the conduct of monetary policy to pursue the macroeconomic objectives of the government. Items in commercial banks balance sheet are influenced by the Central Bank of Nigeria (CBN) through the use of direct monetary policies. The CBN also sets the interest and allocates credits in the economy according to the economic objectives and plans of the government which have direct and indirect impacts on the performance of banks. The policies involves targeting monetary aggregates to monitoring and manipulating policy rates to direct the interbank rate in the desired direction which in turn determines the direction of other market rates. Today, the targeting of inflation and control of interest rate among other policies are the core policies needing the attention of the CBN as the country just entered recession. Various monetary policies have been instituted by the Central Bank of Nigeria to control, regulate and develop the financial system. These have sometimes resulted in distortions in the economy. Over the years, the effects of monetary policies on the performance on banks have been a subject of concerns. The removal of the maximum lending rate ceiling in 1993 saw interest rates rising to unprecedented levels in sympathy with rising inflation rate which rendered banks’ high lending rates negative in real terms. In 1994, direct interest rate controls were restored. As these and other controls introduced in 1994 and 1995 had negative economic effects, total deregulation of interest rates was again adopted in October, 1996. In 2004, the CBN directed that commercial banks in the country must have a minimum capital base of N25billion.
In 2006, Monetary Policy Rate (MPR) was adopted by the Monetary Policy Committee as a replacement for the Minimum Rediscount Rate (MRR) Ajayi and Atanda (2012) which was as a result of influencing direction of interest rate in line with the monetary policy condition.
Since then, the Monetary Policy Rate has remained the operating instrument for the direction of interest rate. The monetary policy formulation has no doubt affected the performance of the banking sector in Nigeria due to the volatility.
In a recent study by Okoye, and Eze (2013) which was on the impact of monetary policy on the performance of commercial banks in Nigeria, they observed that monetary policy rate has positively affected the performance of commercial banks. In contrast, a study by Enyioko (2012), showed that monetary policy has not improved the overall performances of banks significantly.
Since the overall financial sector is vital to the growth of an economy, it is important to analyze the roles of government monetary policies on the performance of the financial sector.
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