Title page i

Certification ii

Dedication iii

Acknowledgement iv

Abstract v

Table of contents vi



Background of the study 1

1.1 Statement of problem 3
1.2 Objectives of study 4

1.3 Significance of the study 5

1.4 Method of data collection 5

1.5 Research questions 6

1.6 Scope of the study 6

1.7 Limitation of the study 6

References 8


Literature review

2.1 Introduction 9

2.2 Models and theories relevant to the research questions 13
2.3 The impact of monetary policy on commercial bank loans 14

2.4 Instrument of monetary policy 16

2.5 Current literature base on each of the relevant variables

Of the model or theory 21

2.6 Trends in Nigeria’s monetary policy 24

2.7 Problems of monetary policy in Nigeria 26



Summary, conclusion and recommendations 29

3.0 Introduction 29

3.1 Summary 29

3.2 Conclusion 30

3.3 Recommendations 30

3.4 Suggestion for further studies



Since 1952, when the first banking ordinance was promulgated and in July 1959, when the central bank of Nigerian commenced operation as the nation’s apex financial institution, remarkable changes have occurred in the Nigeria economy in general and the banking system in particular. These changes that came out of the conscious effort of the federal governmental and the central bank of Nigeria were initiated towards the accomplishment of the economic objectives of monetary stability, price stability, full employment and accelerated economic growth and development in the country.

These are some prominent among the contemporary issues that have brought about significant changes in the banking industry and which have been subject of critical assessment are the following:
i. Banking regulation in Nigeria
ii. Government participation in banking
iii. Foreign exchange management in Nigeria
v. New development in banking system

The regulation of banks in Nigeria dates back to 1952 when the first banking law was promulgated as an attempt to sanitize the industry which before then have been without any meaningful firm of regulation, a factor that was responsible for the mass colleague of many indigenous banks, which sprang up between 1929 and 1951. since 1952, a good number of regulations have been introduced as a way of enhancing the sanity of the system. Apart from banking law the government through the CBN Central Bank of Nigeria uses several other means, one of which the MONETARY POLICY, which also assist in regulating the activities of financial institutions.

These we shall examine and discuss latter in the other chapters.

The following are the reasons for banking regulation
  • To build trust and confidence in banking system.
  • To ensure orderly growth of the economy.
  • To reduce risks taken by banks.
  • To ensure solvency and liquidity of banks.
  • To ensure the assistance of banks in the economic growth and development of the nation.
  • To improve macro economic stability.
  • To reduce the maximum ceiling on credit growth allowed for banks.
  • To prevent the re-occurrence of mass failure of the pre-1952, free for all banging era.

The following are the instruments employed by the CBN Central Bank of Nigeria in regulating the activities of other banks in Nigeria:
  • Banking laws
  • Banker’s tariff
  • Special programme
  • Direct supervision by the central bank
  • Monetary policy circulars and guidelines

Monetary policy is a measure use in controlling the ability of the commercial banks. These measures used in achieving macro economic objectives can be said to not have been sacredly influenced the banking performance in the economic, as some of the bank deliberate and intensively evade these measures that is used by the Central Bank. Also banking institutions like other private sector economic unit have a tendency for hearing a narrow view of the objectives of their enterprise.

The all important objectives is that of profit making for shareholders and remaining in business. The pursuit of this narrow objectives often conflicts with over all objectives of government economic policy. Banks for instance are known to avoid the establishment of rural branches and have a preference for lending short because of the banks tend to favour commerce rather than manufacturing or agriculture in credit granting despite the fact that they make up the priority sectors. This indignations of the system are not in sympathy with the aim of economic policy which is the development of a vibrant self reliant and stable economy.

The question then is, to what extent has monetary policy measures affected the operations of banks and how far are the bank’s reactions to the increase in constraints occasioned by monetary policy bene in sympathy with the aims and objective of policy measures? Some other problems why monetary policy has not been effective in Nigeria are as follows.
  • There is a large non-monetized sector.
  • Non-bank financial institution that are not under the control of monetary authority.
  • Lack of banking habit among the populace.
  • The money and capital market are under developed. In other words, there is paunchy of financial instruments.
  • Communication system is inefficient.

This study is carefully carried out with the following objectives:
  1. To promote economic growth.
  2. To determine the effect of interest rate policy on banking system deposit mobilization.
  3. To examine the effect of various monetary policy on banks.
  4. To ascertain the effect of open market operations on commercial banks investments.
  5. To determine the relationship between credit ceiling and bank credit to the domestic economy.
  6. To determine the effect of sectorial credit guidelines on bank financing of preferred sectors.
  7. To examine the effect of the monetary policy on the performance of banks.
  8. To offer suggestions to the survival of banks under a monetary policy environment.

This study is significant to the extent that an understanding of the manner in which banks react to monetary policy measures is a starting point for the appraisal of the effectiveness of monetary policy. The findings may trigger off further research in this area of study that will better monetary policy formulation and application.

To obtain a reliable information that will help a researcher to measure the effect of monetary policy on bank performance, different sources of data were involved.

There are two broad sources of data used for research work and they are s follows and more of it shall be discussed I other page.
  • Primary data
  • Secondary data
Primary Data: This can be seen as raw data collected directly from the field of study.

  1. Base on this topic,. The research questions to be addressed in this study are:
  2. Does monetary policy increase earnings and profitability?
  3. Does monetary policy increase the efficiency of banks?
  4. Does monetary policy have an effect on bank liquidity?
  5. Does monetary policy have an effect on bank credit?

This study covers various monetary policy instrument and policy options as they affect the banking operations.

This study is however limited to commercial banking institution in Nigeria. Emphasis is clearly laid on applications and not on process of formulation of monetary policy. A research of this nature is a no mean task considering the fact that it is carried out when the researcher has a full time job, it is important to note some of the problems being encountered by the researcher in the course of this research work.
1. Time constrain: There was no sufficient time for efficient and effective data collection and compilation. The combination of work time with the research made time to be limited for the research work. Also getting the respondents and other data from banks exerted considerable pressure on the limited time available.

2. Non-availability of sufficient data: Most of the libraries visited lacked information and CBN and commercial banks officials were unwilling to release all that the researcher needed for the study and this limited the research work.

  1. Tutu Odekunle: The essentials of Banking and Published by (2001) Monetary system in Nigeria Jaytees publisher Lagos Nigeria (Revised Edition).
  2. Abiola Lawal (2005) Principles and Practice of Pubic pubished by Ola’s Finance ventures venture
  3. http: www.cenbank. Org/supervision/conduclt/1988
  4. http: in (issn1450-2887 issue 26 (2009) international Research journal of fin. Econos.

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