Effect of Monetary and Fiscal Policies on Banks’ Performance in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
If monetary and fiscal policy have had any influence on the profit of commercial Banks in Nigeria and also on its loans and advances, over the study period.
To make necessary recommendation that could improve monetary and fiscal policy in Nigeria.
To determine the instrument of monetary and fiscal policy and their individual roles as a control measure on commercial banks.
Finally, to determine the effect of monetary and fiscal policies on commercial bank.
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
Fiscal Policy In Financial Institution
In a study by Ndekwu (1988) it was observed that high interest rates on saving deposit stimulating the supply of savings to the banking system while high cost of borrowing discourage the level of investment. Adekanyi et al (1993) opined that the report established a positive relationship. Agu (1988) found out that the existence of very low and negative interest rates in Nigeria had concluded effects on the level of saving and investment. Uche (1996) has the opinion that current crisis should be seen as a failure on the part of both the government and monetary authorities to provide a conductive economic and political and environment for the practice of sustainable banking in the country.
Government policies how in some cases directly fuelled financial system distress despite the introduction of this reform bank failure occurred resulting in loss of public confidence in the system while the economic greed marginally.
It is believe that if proper policies and regulation are applied banks will out grow the problem some banks and many governments know the real nature, the scope and impose discipline introducing prudential regulation focused on a preventive approach to financial problem and effective remedial action. Most government has a bank supervisory agency located within central bank.
Different ministries supervised different part of the financial system. Government should relies their prudential regulation to established sound, clear and easily monitorial rules. Government should help in rehabilitating indents bank this will be done through purchase of bad assets by a government institution.
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).
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.
Research Design and Sources of Data
The section that could have referred to as either research design or research method is very critical to the entire research process. It is in this section that the research stamps his scientific status on the process. A research design therefore is a blue print or scheme that is used by the research for specific structure and strategy in investigating the relationship that exist among variables of the study as to enable time or her collect the data which will be used for the study.
Research designs are basically of four types, which are “experimental, historical, survey and case study research design”. For the purpose of this study, the researcher adopted the case study approach in evaluating the effect of monetary policy on the performance of Commercial Bank in Nigeria. Both primary and secondary sources of data were adhered to on the course of this study and the attitude and responses of those interviewed were noted.
Primary Sources of Data
The primary sources of data are the sampling or study unit from which information is obtained on a first-hand basis. It is very important to note here that the researcher did not adopt any rigid method in the collection of data; rather the data for the research were collected in response to the requirements of the research problem. Creativity and judgment also played a vital role at this stage of the project, bearing in mind the final judgment will be partly constrained be the type and values of information collected. The primary data were gathered from the following sources:
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 Effect of monetary and fiscal polices on banks performance 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 Commercial 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.
The result of the analysis indicates that
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 Commercial Banks in Nigeria. Thus, the study concludes that monetary policy tools do not influence the financial performance of Commercial Banks in Nigeria.
The study assessed the effect of Treasury Bill Rate (T-Bill Rate) on the financial performance of Commercial Banks in Nigeria. The results showed that T-Bill Rate had a positive effect on the financial performance of Commercial Banks. Thus, the study concluded that T-Bill rates have a positive but insignificant affect the financial performance of Commercial Banks in Nigeria.
The study examined the effect of Central Bank Rate on the financial performance of Commercial Banks in Nigeria. The results showed that Central Bank Rate had a negative effect on the financial performance of Commercial Banks. The study therefore concluded that Central
Bank Rate has no significant affect the financial performance of Commercial Banks in Nigeria.
The study also assessed the effect of Cash Reserve Ratio on the financial performance of Commercial 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 Commercial 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 Commercial 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 Commercial Banks should put more emphasis on the internal factors to financial performance. ii.These internal factors include capital adequacy, asset quality, regulation efficiency, earnings ability and liquidity regulation.
- Monetary policy tools effect will be handled by the regulation through risk regulation 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 Commercial 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.
- The CRR should be complementing the Open Market Operations (OMO) in ensuring that excess liquidity or lack of it in the banking system is minimized, that way Money Supply (M2) will be more effective as a tool on measuring other performance indicators.
- From the findings, the Liquidity Reserve Ratio (LRR) tends to impact more on bank turnover ratio. Because monetary effects of CRR changes are hard to be isolated from those of other policy measures. It means that the constraint of higher reserve requirements on bank lending seems more binding when initial excess reserves shrink below some threshold, restraining the subsequent loan expansion while leading to higher, more volatile market interest rates. The CBN should carefully and thoroughly consider the turnover effect in deciding the LRR.
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