IMPACT OF QUANTITATIVE TOOLS OF MONETARY POLICY ON THE PERFORMANCE OF DEPOSIT OF COMMERCIAL BANKS IN NIGERIA

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IMPACT OF QUANTITATIVE TOOLS OF MONETARY POLICY ON THE PERFORMANCE OF DEPOSIT OF COMMERCIAL BANKS IN NIGERIA

CHAPTER ONE

1.0 INTRODUCTION

1.1 GENERAL OVERVIEW OF THE STUDY

Government polices are used to pursue development objectives of government that bothers on meeting the welfare of the citizens, they could be socially, politically, economically, religious wise, environmentally population and so on. These policies are used to pursue these goals through the use of economic policy. They are open market operation (OMO), moral suasion, special deposit, credit control and discount rate. The banks are one of the financial institutions that formulate the policy objectives and achievement of these goals. This research involves the case study, first bank of Nigerian plc and first inland bank plc.

First bank of Nigerian plc was incorporated as a limited liability company on March 31, 1894 with head office in Liverpool by Sir Alfred Jones, a shipping magnate. It started business in the office of elder Dempster and company in Lagos under the corporate name of the bank of British West African (BBWA) with a paid up capital of 12000 pounds sterling, after absorbing it predecessor, the African banking corporation, which was established earlier in 1892. In the early years of operation the bank has an impressive growth. The changing of the bank name occurs in 1979 and 1991 to first bank of Nigeria plc.

First inland bank was incorporated as inland bank (Nigeria) plc on 20th April 1988 as a private limited liability company. It commenced business operation on October 1988 and was converted to a public limited liability company in June 1992. 2005 the bank went into a merger arrangement with former fist Atlantic bank plc. IMB international bank plc and NUB international bank limited to form first inland bank plc. The shares of the new bank, first inland bank plc are quoted on Nigeria stock exchange. The consolidated bank, first inland bank plc.

1.2 STATEMENTS OF PROBLEMS

1. The under-developed nature of the Nigeria financial market.

2. There is very much presented in Nigeria whereby expected revenue fall below expenditure. This occurrence leads to direct injection to aggregate demand and increase pressure on general price level.

3. The issue of non bank financial institution (NBFI), which are graving in numbers and operations. They adopt deposit but up till now, they are not under the central bank of Nigeria CBN.

4. The delay in the conduct of monetary policy in Nigeria.

5. The delay in releasing the federal government annual budget, which cause economic units to suspend their activities.

1.3 OBJECTIVE OF THE STUDY

1. The primary objective of this research is to meet higher national diploma in banking and finance in federal polytechnic nekede Owerri.

2. To determine if monetary policy has had any influence on the profit of the first bank of Nigeria plc and also on its loan deposit and advances, over the study period.

3. Finally to make necessary recommendations that would improve monetary policy in Nigeria.

1.4 STATEMENT OF HYPOTHESIS

This section would outline some hypotheses of this research project.

Hi: monetary policy tools have an influence on the profit of commercial banks in Nigeria.

Ho: there is significant relationship between monetary policy tools and profit deposit and loans of commercial banks in Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

1. Student would use it for reference purpose when conducting their researche.

2. Practicing bankers would find relevance in this study, this is because, it will help to find out which monetary policy instruments influence bank performance of the most and to them in important matters of decision.

3. It is also vital to central bank and other monetary authorities. Monetary authorities have this work of keeping economic indicators within reasonable limits; this research would definitely be of assistance to the monetary authorities in achieving this aim because it will provide an insight as to which tool would be most appropriate for influencing the economy.

4. An ultimate aim of this study is to bring about stability in the banking system and hence the economy as a whole and this would be of significance to the citizens of the economy.

1.6 SCOPE OF THE STUDY

As Anyanwu (2010), specified out “A research is not expected to cover a discipline in the cause of this study. In line with this statement this project work would not cover every thing on this study ,it will significantly determine the reliability of its findings. Hence, only two performance indicator would be analysed. Despite the fact that there are others like “Net income before taxes total assets deposit and income” The monetary policy tools that would be involved in this study are open market operation (OMO), required reserve ratio (RRR) the cash reserve ratio ( CRR) interest rate policy (IRP), and exchange rate policy (ERP).

The following monetary policy instrument will be excluded such as discount rate policy (DRP) and moral suasion.

It is an experimental study, it is not a full experiment since I would not require a pre-test and post-test analysis neither will it require an experiment and control group analysis.

It is a case study research and will therefore be particular about banks.

First bank of Nigeria plc and first inland bank plc with there size and spread of operations is a representative case study. It has two branches in Owerri, that is first bank and first inland bank plc has two branches in Owerri, and has other branches in the nation.

1.7 LIMITATION OF THE STUDY

In conducting a research work of this nature, certain restrictions are bound to affect the study. These include the following: money, time and effort. Money being a scarce commodity, a student will not have enough money to meet up all there financial obligations by travelling to many organization which is a pre-requisite for a research project. As a result of this defect, this study will centre on the impact of quantitative tools on the performance of deposit of commercial banks in Nigeria with reference to first bank of Nigeria plc and first inland bank plc.

A research work of this nature can not be accomplished within a short period of time. It requires time if one actually wants to write exhaustively on the topic. Also some employees of the bank and to who questions were asked declined interest should every attempt to persuade due to their own time schedule being a limitation to a project.

1.8 DEFINITION OF TERMS

LAG: This is the period between the conception of an idea and the time of implementation.

FINANCIAL SYSTEM: This is the conglomeration of market institutions, regulatory authorities, intermediates and the dealers in the economy.

INFLATION TREND: The upward or downward i.e. increase in the rate of inflation.

LENDING RATE: This is a rate at which banks make advance to their customers.

MONEY SUPPLY: This is summation or total amount or stock of many in circulation.

CONTROL: This is the process of insuring that firm activities confirm to as planed in ensuring that objectives are achieved.

OBJECTIVES: These are goals on enterprise seek to achieve by its existence and operation.

TOOLS: These are instrument used for a particular kind of work.

OPEN MARKET OPERATION: This is defined as the selling or buying of government securities in the financial markets by the central bank.

MONETARY POLICY: This can be defined as the major economic stabilization weapon which involves measure designed to regulate the volume, cost availability and direction of money and credit in the economy.

LIQUIDITY TRAPS: This is defined as a case where the interest rate falls so low that individuals and business wish to hold any new money created in the banking system as speculative balance.

HYPOTHESIS: This is an educated guess which the researcher made ahead of time which will be put to test for acceptances or rejection.

STABILIZATION SECURITY: These are securities specifically issued by the central bank at time it deems fit for the purpose of moping up excess liquidity in the banking system.

INTEREST RATE: This is a price of capital to the borrower and a return on capital to the saver or lender.

DISCOUNT RATE: This is also known as minimum rediscount rate or bank rate is a rate at which central bank offer financial assistance to financial institutions through loans or discounting bills.

DEPOSIT ACCOUNT: This is an account in which a person keeps a specific sum of money for an agreed period of time.

CASH BUDGET: This is a type of budget prepared by an organization based on the availability of cash.

BALANCE SHEET: This is a financial statement that shows the activities of an organization within a specified period.

QUASI MONEY: These are money that are not cash or paper-money but are also used for transaction purpose and also regarded as money.

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