THE EFFECT OF MONETARY POLICIES OF THE CENTRAL BANK OF NIGERIA (CBN) ON DEPOSIT MONEY BANK. (A CASE STUDY OF SELECTED BANKS)
ABSTRACT The role of Central Bank of Nigeria as the apex regulatory authority in the financial system cannot be over emphasized, most especially through the use of the monetary policy to regulate the supply of money in banking operations. The purpose of this research is to find the effect of the monetary policy on banking operations in its bid to regulate the supply of money in the Nigeria economy with special regards to deposit creation and credit allocation. This research use three case studies; First Bank of Nigeria plc and Ecobank (Nigeria) Bank, and Union Bank of Nigeria. With a sample size of forty five (45) secondary data were collected from journals, magazines, internet, textbooks for the literature review, primary data’s were also collected by the use of questionnaires and personal interviews response were analyzed using the chi-square method of analysis from which findings were made. It was discovered that the monetary policy has tremendous effect on banking operation, base on these findings some useful subjection and recommendations were made for effective management and growth on banking operations.
CHAPTER ONE 1.1 INTRODUCTION Monetary policies refer to measures or contributions of measures designed by the monetary authorities to influence or regulate the volume and direction of money and credit, Hyman, (1989). Monetary Policy influences the volume and direction of purchasing power in the economy and it is an instrument of market intervention to achieve rationally stipulated objectives which would otherwise be impossible to attain in terms of volume, speeds and direction, Oyindo (1991). The extent to which money and monetary policies influence finance and economic activities have been widely discussed over the years. While it is generally agreed that monetary. development affects economic and financial performance, there are of different views on the extent of effect and the channels through which this effect is achieved. Therefore, the effect are achieved directly as well as indirectly through feed-back effect from the economy thus, monetary management rely on two b; ad categories of tools or instrument usually when the quality of money supply changes relative to money demand because of policy measures, there are changes in relative price and wealth, Onyindo (1991). Monetary and banking policies are usually the responsibility of the Central Bank of Nigeria and the Central Government. In Nigeria, the Central Bank exercise primary responsibilities for initiating, articulating, implementing and appraising such policies to the approval of the federal government, Odozi (1995). The package of measures for monetary and banking management so far has had desirable effects like keeping the liquidity in the banking system from exploding further, but to an extent, the monetary authorities were unable to prevent growth in credit and money stock which was mainly as a result of undue fiscal expansion which has prosily greater challenges for the future.
1.2 BACKGROUND OF THE STUDY Monetary policy is an important tool that an economy cannot do without, it any economy and one of the ways through which the Central Bank of Nigeria seek to do this, is through commercial banks via banking operations. Managing an economy entails articulating well remaining strategies and devising various policies and measures that will ensure efficient utilization of nation’s resources with a view of promoting economic growth, employment and stability, Onyiclo (1991). Thus, to ensure efficiency, the Central Bank of Nigeria is of permanent importance. In the past, Banks operate arm chair banking which they occupy prior to the banking industry, thus position brought about 1itte or no competition in the banking industry because bank were few at that time, thus made customers open account out of a free will. A change that occurs was the liberalization of license to bank an implementation of light monetary policy monetary authorities which necessitated an aggressive marketing of bank services. During this period, banks started coming out with different modes of operation and financial products to attract customers, which led to the completion in the banking industry. Banking operation is very important because it plays a crucial role in the national payment system and saving investment processes by the mobilization of deposits into available to investors by channeling their ingestible funds from the surplus to the deficit sector, therefore, helping in the development of the economy by contributing to the flow of goods and services, employment, income and consumption, Onyido (1993). The existence of an effect bank industry is important to every economy because it creates the necessary environment for economic and development through its role in supplying funds to economic units, thus stimulate investments as well as international trade and payment hence it explains why every economy takes interest in creating and nurturing its banking industry. The use of monetary policy on the banking sector to bring about effectiveness rely on the control of money stock in order to influence financial and economic activities thus the Central Bank of Nigeria act as an accelerator of economic development. It also acts as an institutional catalyst, propels the economy towards the country’s desired economic goods continuous of active monetary policy to regulate and manage the currency and credit system. Moreover, monetary policy is a tool that is used in achieving meaningful dialogue and understanding between the financial institution and the monetary authorities in any economic system as a result of the unique position that the banking industry hold in all economics creator of money, as major allocator and credit and managers and credit and the manager of the country’s payment mechanism, thus, the federal government deems it necessary to formulate policy to guide the banking industry. In varying degree, these policies are aimed at achieving macroeconomic objectives such as economic growth, price stability, employment and a viable external payment position. In like manner, the price policies also achieve micro-economic objectives of stability, efficiency and soundness of financial system. These policies are in general affected through the regulation of banking system thus banks are channels through which the monetary policy can pass through in order to influence economic development.
1.3 STATEMENT OF PROBLEM In the Nigeria economy, there is a problem of excess liquidity especially outside the banking industry. This has been a source of concern to all and sundry particularly to the monetary authorities thus if allowed to escalate out of proportion, it will lead to excess inflation in the economy. This is a situation where too much money chases too little goods, which is not a healthy situation for any country. The major problems centered on the impact of the monetary policy on banking operation in a bid to curb the problem of regulatory money supply in the economy and to what extent should the monetary authorities go, in regulating excess liquidity in the Nigeria economy without distortion in the industry.
1.4 OBJECTIVE OF THE STUDY The study is embarked upon to see; 1. How many policy affect banking operations in its bid to regulate money supply in the economy with particular reference to deposit and credit creation. 2. How far the Central Bank of Nigeria has gone in its achievement of regulating money supply. 3. If the monetary policy has improved the industry as a whole. 4. The importance of monetary tools in achieving the desired control through bank operations. 5. The impact of monetary policy on banking operation both positively and negatively.
1.5 RESEARCH QUESTIONS