THE EFFECT OF MONETARY POLICY ON BANK PROFIT IN NIGERIA (A STUDY OF FIRST BANK PLC NNEWI ANAMBRA STATE)

ABSTRACT

This study is to examine the effectiveness of monetary policy on banks profit in Nigeria, with a study of first bank Nigeria plc. Nnewi Anambra State. The researcher sees it important to actually find out what monetary policy is and its activities in Nigeria and how it affects bank profit in Nigeria. It is therefore, concluded that monetary policy measures that are recently adopted in Nigeria is controlling the volume of commercial banks credit and also the profit that will be made from the available credit. The researcher recommended that for effective operation of monetary policy measures in Nigeria, CBN should be granted full autonomy on its monetary functions, CBN should create effective policy in the financial market, but let them make the policy public to enable every area of the banking sector to be informed of the new banking measures. The federal government should ensure that the CBN is strong in executing policy to enable the people concern learns the type of law that is biding them. The central bank of Nigeria should also carry out short term course, conferences, seminars and workshops, for other financial houses on the right way to bank. The researcher will use both primary and secondary data. The primary sources include the use of questionnaire while the secondary source include text books, lecture notes, article and other important write ups in various journals.

TABLE OF CONTENTS

Title page……………………………………………………………….…………………..i

Certification……………………………………………………………………………….ii

Dedication……………………………………………………………………………..….iii

Acknowledgements……………………………………………………………………iv

Abstract……………………………………………………………………………………..V

Table of Contents………………………………………………………………………vii

CHAPTER ONE: INTRODUCTION

Background of the Study……………………………..…………….1

• Statement of the Problem………………………………………….4
• Objective of the Study……………………………….……………….4
• Statement of the Hypothesis………………………………………5
• Significance of the study…………………………………………….6
• Scope of the Study…………………………………….……………….6
• Limitation of the Study…………………………………….…………7

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1 Theoretical Literature ……………………………………………………8

2.1.1 The Classical Theory Of Monetary Policy…………………..…8

2.1.2 The Keynesian Theory Of Monetary Policy………………….13

2.2 Monetary Policy In Nigeria…………………………………………….19

2.4 Influence of monetary policy on the Banking sector….…..23

2. 5 Stance Of Monetary Policy In Nigeria Banking System…..27

2.6 Empirical Literature…………………………………………………….…28

2.7 Limitation Of The Previous Literature…………………………….31

CHAPTER THREE: RESEARCH METHODOLOGY AND DESIGN

3.1 Design of the Study……………………………………………..34

3.2 Population of the Study…….…………………………………34

3.3 Sample Size………………………………………………………….34

3.4  Instrument of Data Collection………….……………..…..36

3.5 Method of Data Collection……………………………..……36

3.6 Method of Data Analysis………………………………………37

3.7 Validation of the Study…………………………………………38

3.8 Reliability of the Study…………………………………………39

CHAPTER FOUR: DATA PRESENTATION,ANALYSIS AND INTERPRETATION.

4.1 Data Analysis Technique……………………………………………..…40

4.2 Analysis of The Questionnaire………………………………………..41

4.3 Testing Of Hypothesis………………………………………………….…43

CHAPTER FIVE: SUMMARY OF FINDING, CONCLUSION AND RECOMMENDATION

5.1 Summary Of Findings…………………………………………………..…52

5.2 Conclusion………………………………………………………………….…..52

5.3 Recommendation……………………………………………………….…..55

REFERENCE

APPENDIX

QUESTIONNAIRE

CHAPTER ONE

INTRODUCTION

• BACKGROUND OF THE STUDY

Basically, a bank has a two-fold function in connection with receiving deposits and making loans, there are many services that bank render which are fundamental important to normal function of our economic system. For example, bank provide a safe place for the deposits of fund, which temporarily are not needed by their owners, through the bank services in changing money, individual may obtain currency of coin, in the denomination desired. Also through cheques, depositors can pay their bills, reducing carrying of money from place to place, thereby minimizing risks. The banks also assist in the book keeping operations of his depositor record of both cash and credit funds received and disbursed and equally rendering receipts in the form of cancelled cheques for bill discharged.

Banks equally assist in facilitating credit transaction through their services to customer in obtaining information with regard to the financial responsibility of prospective purchased of the customer goods and services. Finally, banks grant loans to individuals, merchant, manufacturer, and others. A banking service made possible by the accumulated funds of depositors and the ability of banks to create money and use the same money created to make profit, which is the aim of going into business.

If these services aim at making profit is received by the public without interruption, the banks of the country must be managed wisely. The management of an individual’s bank represented by its board of directors and its executive officer must be familiar with banking practices and procedures. They must have a through knowledge of the problem of banking industry and finance in general and its customer and their territory in particular. In the light of this information, the management should formulate sound policies for the safe conduct of the bank in order to protect the depositors fund, provide adequate compensation for their employees, serve the community and earn a fair return for the stockholders. They should equally integrate properly the government monetary and fiscal policies in their policies for proper blending of their operation. This would help to form a sound policy for the banks operation, which is perhaps the most important in the banking industry.

Banking operation and profit making has been in existence even in ancient times. To establish this point, Anyanwaokoro (1996:6) observed that ‘’ in the bible’’ (mark 12 verse 15-17) reference was made in the new testament to money changers in the temple of Jerusalem. Mentions was also made of silver coins that had image of Caesar which was presented to Jesus Christ, concerning these coins Jesus said ‘’give to Caesar what belong to Caesar’’, in the parable of ten talents (Matthew 14 verse 14-29) Jesus Christ explained how the master of a lazy servant rebuked the servant for not banking his money. Many authors believe that modern banking operation and profit making originated from ancient goldsmith of London, although the London goldsmith version is questionable, since London was not among known world in bible times, we will still discuss that version because it present to us the basic principle guiding the operation of modern banks. All this profit oriented activities of bank are being controlled by central bank and for central bank to control them effectively; appropriate measures must be put in place.

Monetary policy refer to the measures designed to regulate the value, supply and cost of money in an economy in consonance with the expected level of economic activity as well as achieving the following objectives

1. Stimulation of economic growth.
2. Healthy balance of payment
3. Reducing unemployment

• STATEMENT OF THE PROBLEM

In the contemporary economic development environment, studies have shown that bank is the life wire of an economy, both the developed and developing economy and that no economy can grow economically without banking business. The banking sectors have over the year encounter some problem due to ineffective control and non compliance of CBN guidelines. Commercial banks like first bank of Nigeria plc. Sometimes have problem of low profit margin. The failing of the banking sector will lead to economic depression. This is because banking sector is seen as the life wire of the economy.

It is in response to the above problem that informed the study on the subject matter. ‘’ the effect of monetary policy on bank profit in Nigeria’’ with special reference to first bank plc.

1.3 OBJECTIVES OF THE STUDY

The purpose of the study is to show that within the context of Nigeria’s economic growth and development, commercial banks have help a lot through their various functions which is aimed at making profit. The study will also show how the commercial bank’s activities are being controlled by the monetary authorities through various instruments and the way these measures affect commercial banks profit, therefore the objectives of the study includes:

1. To examine what exactly is monetary policy and it’s instrument
2. To examine how is used by the monetary authority to influence the activities of the commercial banks
3. To identify these monetary policy instrument and how it affect the profit of commercial banks in Nigeria

1.4 STATEMENT OF HYPOTHESIS

1. ho₁: monetary policy measures in Nigeria are not effective

hA₁: monetary policy measures in Nigeria are effective

2. ho₂: there is no significant relationship between monetary policies and commercial banks loan and advances

ha₂: there is significant relationship between monetary policies and commercial bank loans and advances

3. ho₃: monetary policy instrument are effective in actualizing the profit of the commercial bank

ha₃: monetary policy instrument are not effective in actualizing the profit of the commercial bank

• SIGNIFICANCE OF THE STUDY

This study is extracted to explain the effect of monetary policy on bank profit in Nigeria, the result and recommendation from this study will beneficial to policy maker on the type of policy to be introduced. The result will also be relevant to entrepreneurs, future investor and the entire public, it will help researcher in other related field to carry out further research on the subject matter in the future.

• SCOPE OF THE STUDY

This study is an empirical one which concerns the effect of monetary policy on commercial banks profit and the research work is restricted to first bank plc. Nnewi Ananbra state

• LIMITATION OF THE STUDY

In the course of this study, the researcher encountered problem which in one way or the other challenge the easy flow of this work. These include:

1. Distance: in the course of this study the researcher was faced with the challenge of travelling to and fro.
2. Time: it seemed there was no enough time to meet up this work but the researcher properly managed his time effectively and efficiently.
3. Finance: at a time, it was difficult and almost impossible to continue because of lack of finance
4. Fatigue: the human factor also tried to hamper this study by constant body breakdown as a result of fatigue, tiredness and distraction.

Holding of Information: during the research, I noticed that those approved for information were not really willing to give it.

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