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TRAINING INVESTORS ON FISCAL MANAGEMENT AND INVESTMENT INA RECEEDING ECONOMY
Monetary policy is a major economic control tool which involves a member of measures for the purpose of regulating, controlling and managing the volume of money and credit in an economy in order to stimulate and sustain economic growth and development. The various monetary policy measures instituted in the country over the years had directly and indirectly affected the performance or the bank sector. The study was based on secondary data sourced from the Central Bank of Nigeria’s annual report statistical bulletin and Financial report of the sampled banks. Monetary policy formulation and implementation were largely based on the use of market-based instruments, comprising open market operation (OMO), reserve requirement, Discount ratio and so on. The banks in their daily operation can perform liquidity transformation, create money and derive the bulk of their fund from the general public. This forms governments monetary and legal regulation of banking activities. The major challenges of the effectiveness of monetary influence in the banking sector are the need to remove the distress in the banking system and the need to remove the constraints of monetary management. However, various monetary policy measures instituted in the country over the years have directly and indirectly affected performance of the banking sector in a number of ways while includes Banks profitability, Deposit/Savings mobilization Loans & Advances and so on. The effectiveness of bank’s performances depends on the instruments used in macro economic policies and the prevailing economic conditions and the deregulation of the sector has led to a number of improvements. The economic policies or interpretation of such policies has always left a key question unanswered, how much authorities do such policies allow the banks to use their powers to lend, to made remarkable impact in the overall economic situation in the country. Like in banks in most developing economic (Nigeria inclusive) the role of providing advice and issuing financial directives lies in the ministry of finance, the Nigeria deposit insurance corporation and the central bank of Nigeria. The federal government relies on these institution for the proper functioning of banks through their monetary policies, which could be concretionary or expansionary. This invariably affects the commercial banks etc. hence the need for this study. The Zenith Bank Plc has been chosen in this regard and except where specified individually, banks becomes the terminsnolyg. In this study in depth study is made on how the Apex Banks, the CBN’s financial monetary policies affectS commercial banks. Chapter one of the study deals on the back ground, study of the problems. Statement of hypothesis and what significant of the study is. Second chapter studies the literature used. The chapter three emphasis on the techniques.
1.1 BACKGROUND OF THE STUDY
Monetary policy as a technique of economic management to bring about Sustainable economic growth and development has been the pursuit of nations and formal articulation of how money affects economic aggregates dates back the time of Adams Smith and later championed by the monetary economists. Since the expositions of the role of monetary policy in influencing macroeconomic objectives like economic growth, price stability,
equilibrium in balance of payments and host of other objectives, monetary authorities are saddled the responsibility of using monetary policy to grow their economies. In Nigeria, monetary policy has been used since the Central bank of Nigeria was saddled the responsibility of formulating and implementing monetary policy by Central bank Act of 1958. This role has facilitated the emergence of active money market where treasury bills, a financial instrument used for open market operations and raising debt for government has grown in volume and value becoming a prominent earning asset for investors and source of balancing liquidity in the market. There have been various regimes of monetary policy in Nigeria some times, monetary policy is tight and
at other times it is loose mostly used to stabilize prices. The economy has also witnessed times of expansion and contraction but evidently, the reported growth has not been a sustainable one as there is evidence of growing poverty among the populace. The question is, could the period of growth be attributed to appropriate monetary
policy? And could the periods of economic down turn be blamed on factors other than monetary policy ineffectiveness? What measures are to be considered if monetary policy would be effective in bringing about sustainable economic growth and development?. These are the Questions this study would attempt to answer.
Most banking activities are directed towards lending as credit has remained the backbone of banking operations. It is due to the fact that it provide the bulk profits.
Today, its vital role in commercial banking activities lie in the direct it has on total economic growth and business development. Every year the (CBN) central bank of Nigeria being the monetary authority that is solely responsible for the insurance of guidelines policies and the interpretation of such, comes up with economic measure roles and regulation under which the bank in the country operate. Such policies direct the use of funds from depositors, stockholders, and creditors in order to control the size of loan portfolio thereby determining the general circumstances under which it is appropriate to make an advance. The monetary policies also aim at aiding the banks to maintain a sound financial and banking system promote confidence in sustenance of reasonable banking services for public as well as ensuring a high standard of conduct and professionalism in banking industry. These rules and regulations are contained in monetary policy circular being issued by the central bank at the beginning of every year.
The techniques of monetary policies could be broadly divided into two namely:
Direct and Indirect.
While the direct approach has been used very extensively in the more developed market economic, the indirect approach predominate in the less developed economics such as Nigeria. Nonetheless, both technology aim at influence the cost and availability of banking system’s credit. The direct system techniques involves fixing of credit ceiling and interest weight rates the Apex Bank (CBN) for compliance by banks, while the direct approach achieves the same objective through the financial market. The most potent instrument of the indirect monetary policy technique is the open market operation (OMO). It is worthy of note that effort aimed at introducing incorrect monetary and credit-control anchored on the use of OMO are themselves a parts of the given receipts which they would present to the gold smith on withdrawal.
According to Paul Sammuelson, (1990-20) money has an anonymous quality making are dollar just as good as another. In relation to the above the goldsmiths recognized that not all depositors of gold when they come back at the same time to collect them. These receipts signified time to collect them. These receipts signified debt and were transferable. Out of the gold deposited, the goldsmith started to lend out part of them and charge a fee for these services.
Hence the evolution of our bank lending. As development continued to surface in the society it become possible for financial institution to emerge and act as bank where people go to deposit their money and other precious metals for future withdrawals and most importantly lending money to the users of fund. Bank lending has ever since then been on the increase with different hierarchy of operations.
1.2 STATEMENT OF THE PROBLEM
Of recent, the economic sector in Nigeria has not been able to fulfill its traditional role of feeding the population, meeting the raw materials needs of industries, as well as providing substantial export earnings for the economy. Indeed, the contribution of the sector to gross domestic product (GDP) has been falling, not necessarily because a strong industrial sector is displacing agriculture but as a result of low productivity. The largely subsistence economic sector has failed to keep up with rapid population growth.
Nigeria is Africa’s most populous country and the country, once a large net exporter of food, now imports food. Emerging problems which constrained the full realization of the potentials in the economic sector include: inadequacies in the supply and delivery of farm inputs, shortage of working capital, low level of technology, diseases and pest infestation, poor post-harvest processing and shortage, technology, environment hazards, labour and land use constraints. Most of these problems could be solve with the appropriate monetary policy.
The need to correct the existing structural distortions in Nigerian economic sector and put the economy on the path of sustainable growth is therefore compelling. This raises the question of what monetary policy to adopt to develop the economic sector in order to realize the potentials of the sector. This is the main thrust of this study.
Monetary policies are organized and established system of administration of loan, and its disbursement have so many loopholes which undermine its base exercise and guidance. It is a statement that need not be overemphasis.
These policies being one out of measure used by that nation ability to mobilize and channel its scare resources to different sectors of the economy. Therefore when these economic policies are seemingly deficient, it poses a big question which needs to be answered. How much authority do such policies allow the banks to use their powers to lend to make remarkable. Impact on the overall economic positions on themselves (hence profit). A major conclusion has been that effective implementation through the financial intermediation will serve a machinery for economic progress and profit enhance ability.
Apart from the explicit policies which are extremely imposed by the CBN implicit rules and regulations are also developed by the bank to guide their internals operations.
But these guidelines are developed from the mature of banking industry. Generally, these policies have three implications. One to the banks to the borrowers and to the economy. Emphasis is laid here on the implication it has on the banks.
Banks lending dates bank to the days when the hold smiths accepted deposits from the merchants, mostly gold and valuable for safe keeping. At first such establishment were simply like ware house. Depositors were central bank of Nigeria towards the maintenances of prudent banking have fare reading effects on banking and the Zenith bank Plc in particular. The question therefore arises what effect do these policies have on commercial banks, customers and the economy? Are these policies and conditions too strength as to constitute a problem to lending?
Do commercial banks ensure full compliance to the monetary policies circular?
Are there government objective for introducing these rules and regulations being achieved?
The CBN’s guidelines, rules and regulation normally contained in the monetary policy circular have always been aimed at achieving targeted goals. The commercial banks which are expected to operated to operate under the guidance of the regulations of the CBN have also their own internal lending policies objectives to achieve. All these pose a lot of problems to the bank’s credit decisions worthy of note is the CBN directive that lending should not exceed and foreign transfer to individual should not exceed N1,000,000 and corporate bodies N5,000,000. this has made of possible for banks to have loan or credit dispersal and control money laundering. Based on the above a performance evaluation of the effect of these policies is inevitable to finding out the resultant effect on banks activities using the 2011 and 2012 monetary policies.
1.3 OBJECTIVE OF THIS STUDY
1. To assess the impact of monetary policy in Nigeria, specifically, if it has
facilitate growth or not and examine the effect of other co-operant factors in bringing about the desired sustainable economic development in Nigeria.
2. To achieve balanced and steady economic growth and development.
3. To instil some sanity into a Nigeria’s financial system, the need for monetary policy becomes inevitable.
4. To examine the trend and structure of monetary policy in Nigeria;
5. To evaluate the performance of the economic sector in Nigeria over the years.
6. To empirically investigate the impact of the monetary policy on agricultural development in Nigeria;
7. To make recommendations on how to boost the performance of the economic sector through appropriate monetary policies.
i. Assessment of the extent to which commercial banks have been able to comply with statutory allocation of credit to the different sectors of the economy through the CBN credit to the different sectors of the economy through the CBN guidelines.
ii. Whether the commercial banks have been able to maintain the credit ceiling and how far interest rate deregulation contain in policy has been able to affect the volume of banks lending.
iii. To test the rigidity of the policies and its effects on the borrowing customers.
iv. To draw outlines of credit offered by these banks and their appraisal process highlighting the environmental influence that impinge on the monetary policy practices in Nigeria.
v. Lending is of paramount importance in the economy hence the research work will investigate lending policies and practical of the banks system in the country funding out how realistic they are in line with the nations economic settings.
Making recommendation where necessary and suggesting ways to ensure effective implementations of these policies to achieve the desired objectives.
1.4 RESEARCH QUESTION
1. The question is, could the period of economic growth be attributed to appropriate monetary policy?
2. Could the periods of economic down turn be blamed on factors other than monetary policy ineffectiveness?
3. What measures are to be considered if monetary policy would be effective in bringing about sustainable economic growth and development?.
4. What has been the trend and structure of monetary policy in Nigeria over the years?
5. What has been the performance of Nigerian economic sector over the years?
6. How do the monetary policy instruments affect economic sector in Nigeria?
1.5 RESEARCH HYPOTHESES
The hypotheses to be tested in the course of this research work are stated below:
H0 – That monetary policy instruments do not affect agricultural output in Nigeria.
H1 – That monetary policy instruments affect agricultural output in Nigeria.
H0 – That monetary policy instruments do not affect index of agricultural production in Nigeria.
H1 – That monetary policy instruments affect index of agricultural production in Nigeria.
H0: No measure that can be considered to ascertain if monetary policy would be effective in bringing about sustainable economic growth and development.
H1: Measures can be considered to ascertain if monetary policy would be effective in bringing about sustainable economic growth and development.
H0: The are no trend and structure of monetary policy in Nigeria over the years.
H1: The are trend and structure of monetary policy in Nigeria over the years.
H0: Monetary policy instruments does not affect economic sector in Nigeria.
H1: Monetary policy instruments affect economic sector in Nigeria.
Ho: The implementation of CBN policies have shown adverse effect on commercial banks.
Hi: The commercial banks have shown fall compliance with CBN guidelines on the allocation of credit to the high priority sector.
Ho: The commercial banks have shown fall compliance with CBN guidelines on the allocation of credit to the high priority sector.
Hi: The commercial banks have shown fall compliance with CBN guidelines on the allocation of credit to the high priority sector.
1.6 SIGNIFICANCE OF THE STUDY
Government over the year have made inspiring calls to all citizens be self reliant and in a bid to achieve this loan to rural borrowers have been increased to 50% and as well sectored allocation (SMES) small scale and medium enterprises as well as according priorities to key sector of the economy.
This research work being an appraisal of the impact of monetary policies on Nigeria commercial banks (Zenith) precisely will enable the apex bank restructure and relax the assumed stringent measure in order to make it possible for necessary assistance from banks.
However, the primary motive for any corporate business is for profit optimization and the maximization of shareholders health banks are no exception. From this research, they will realize that proper implementation of monetary policies can ensure higher profitability of the banking industry. To borrowing customers, they will deduce some act inherent in loan defaulting an what are the causes of high interest rates and their remedies. This implies that of they continue borrowing funds without paying back, this banking industry may in future become liquid which will result in high interest rate and subsequently high cost of borrowing fund. It will also constitute guide towards future design and formulation of lending policies by the monitoring authority through the implementation of recommended measure.
Finally, this work will be of immense help to other university undergraduates who will like to writ on this topic as well as exposing to monetary policies available to the commercial banks in Nigeria.
This study is significance in the following ways:
1. It would provide an objective view of the effectiveness of Nigerian monetary policy in terms of its promotion of economic development;
2. The study would also provide an econometric basis upon which to examine the effect of monetary policy on economic development in Nigeria;
3. Lastly, it would provide policy recommendations to policy-makers on ways to make the Nigerian economic sector vibrant through the monetary policy.
1.7 SCOPE AND DELIMITATION OF THE STUDY
The economy is a large component with lot of diverse and sometimes complex parts. However, this study will only focus on some macroeconomic variables such as the monetary policy and economic development. This study will cover all the facets that make up the monetary policy, but shall empirically investigate the effect of the major ones. The empirical investigation of the impact of the monetary policy on the agricultural development in Nigeria shall be restricted to the period between 1970 and 2013.
This study shall contain five chapters. The first chapter shall contain the background of the study, the statement of the research problem, the objectives of the study, the research questions etc that would guide the study. Chapter two summarises the opinions of different authors on the subject matter. Chapter three states the methodology adopted in the study. Chapter four focuses on the presentation and interpretation of the regression results. The last chapter, which is chapter five, presents the summary of the findings, conclusion and appropriate recommendations.
1.8 DEFINITION OF TERMS
(i) Open Market Operation (OMO):
This is the buying and selling of government securities by a central bank, such as the Central Bank of Nigeria, in order to control the money supply.
(ii) Expansionary Monetary policy:
Expansionary monetary policy is when the Central bank is using its tools to stimulate the economy. This usually means lowering the cash ratio to increase the money supply. The opposite is contractionary monetary policy
(iii) Moral Suasion:
This is an application of pressure, but not force, by an authority (such as the Central Bank) to get financial institutions to adhere to a policy.
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