THE IMPACT OF CENTRAL BANK OF NIGERIA REGULATORY POLICIES ON COMMERCIAL BANKS OPERATION (1990 – 1998)
(A CASE STUDY OF UNITY BANK OF NIGERIA PLC)
Monetary policies are a stabilization weapon used to regulate the value and cost of money in the economy, it is important for Central Bank of Nigeria to promote stability and a sound financial structure in Nigeria.
Central Bank of a country is regarded as the apex bank regulatory institution of the financial system of a country. Central bank is an institution charged with the responsibility supervising and regulating the supply and availability and cost of money with interest of social welfare.
This study reveals the impact of monetary policies on commercial bank operations for the period of 10years. From or quite a number of past related literature examined by other studies as its relates to the impact of monetary policies on commercial bank operating were also highlighted.
Primary forms of data were used in the research findings. The data gotten from the research survey were analysed and interpreted. Also similar questions on both questionnaires were complete.
TABLE OF CONTENTS
Background of the study
Statement of problem
Objective of the study
Scope of study
Limitation of the study
Definition of terms
Evolution of Central Bank of Nigeria
Function of CBN
Historical background of Commercial Banking in Nigeria
Development of indigenous banks
Era of Banking Legislation Regulation and Control
Era of Banking Deregulation
Implementation of Monetary Policy in Nigeria
Bank regulation, supervision and Examination in Nigeria
Basic Goals of Bank Regulation
Prudential Regulation of the Bank
Money Supply in Nigeria
3.1 Procedure for data collection
3.2 Method of data analysis
3.3 Sources of data
Chapter Four –
4.1 Data Presentation and Analysis
Chapter Five – Conclusion and Recommendations
Background of Study
Central Bank is a bank established through the Act of Parliament. It is the bank that acts as a banker to Federal Government and stands also as a guideline to the entire banking system of a country. According to Umole (1986), it is a medium through which government policies are routed to the financial sector of the economy. Its (Central Bank) functions include the promotion of monetary stability and a sound financial system in Nigeria, (section 27 CBN Decree No. 24, 1999). It is actualized objectically by formulating and executing monetary policies.
Central bank with its authority is charged with the responsibility of regulating/supervising the banking industry. It regulates and control the activities of banks through deliberate manipulations of money supply.
Central bank’s role includes;
Conduct of monetary policy with the objective achieving macroeconomic stability and other objectives of government
Promotion and development of the payment mechanism
Development of the financial system
The continuality of off-fit surveillance and on-sit field examination of backs to the safety and soundness of the system and compliance with the relevant laws and regulation etc.
However, since the trade of the apex bank in banking industry is money, the supervision and firm control of the activities of commercial banks, though the manipulation of various components of money are made available to banks. The goal of monetary policy and approach which the CBN adopts compliance and attention should be given to them. The CBN is also responsible for the issuing of licenses and appointment of directors to the banks, monitors the activities such as management, advertisement, profits and the account of banks.
In administering or discharging its mandate, the CBN collaborate with other supervisory bodies in particular NDIC. CBN/NDIC collaboration covers such areas as the sharing of information, joint examination of banks, designing and implementing failure revolution measures etc. This examination is aimed at achieving monetary stability by ensuring that banks comply with the monetary policies of the government. In other to regulate the activities of banks, the CBN applies three methods of control which are:-
Monetary and credit control
Prudential control and
Supervisory control (Examination and Supervision).
Monetary and credit control appears to be in use must partly because of the ability of monetary authorities to control money supply.
STATEMENT OF THE PROBLEM
This study focuses on the impact of the regulatory policies of the CBN on commercial banks’ operation in Nigeria. In carrying out its obligation, the CBN employs the tools of monetary policy for the purpose of regulating money supply at any given point in time. In this, there might be some problems which are encountered in carrying out this task. We will be finding out whether there is any relationship between money supply and the tools of monetary policy. For the effectiveness of CBN, we will look at its management of the monetary policy and how it affect the banks, the Nigeria Economy and whether the monetary policy instruments has a greater effect on money supply in the Nigeria economy.
OBJECTIVES OF THE STUDY
This study is to examine empirically the impact of the use of regulating policies (monetary polices) by the CBN to control and monitor the activities of commercial banks. Thus, these objective are:-
To examine CBN’s money mechanism using the monetary policy guideline during the period 1990-1998.
To determine the relationship between the expected monetary target and actual monetary targets achieved during the period 1990-1998.
To determine the effectiveness or otherwise of the administration machinery for the executive of monetary policy in Nigeria.
To suggest appropriate remedies for future improvement when necessary.
Is there any relationship between money supply and the role of monetary policy?
How has the management of the monetary policy affected commercial banks operation in Nigeria?
Is there any significant effect on the Nigeria Economy following the application of the monetary policy?
Which of the monetary policy instruments has a greater effect on money supply in the Nigeria economy?
SCOPE OF THE STUDY
This study is carried out to examine the CBN regulatory monetary control measures and how they affect the activities of commercial banks in Nigeria. Our study will be restricted to commercial banks in view of the dominant role they play at the largest mobilizers of savings, investments in the economy. Also the monetary and credit policies are primarily executed through the commercial banks and they provide large recommendations. This is aimed at enhancing commercial banking and the administration of regulating policies by the CBN in the Nigeria economy.
LIMITATION OF THE STUDY
This study evaluate the money supply approach of the Central Bank of Nigeria and the effects on the liquidity levels available to the banks necessary to their operations. We examine the peculiarity of the Nigerian situation in relation to the existence of various important characterized by how level of development of money and capital market.
Policies like fiscal and income policies, price control etc, are administered along with the monetary policy.
Consequently, it is difficult to single out the impact of monetary policy. Again, monetary policy administration may be delayed because of the existence of various laws in the economy. These lows include, recognition, action and effect lows. Other constraints include difficulty in determining data, financial and time constraints.
DEFINITION OF TERMS
Liquidity:- This is a state of owning things of value that can easily be changed into cash
CBN:- It is the apex regulatory authority in Nigeria financial sector. The responsibilities of CBN are defined by the Bank and Other Financial Institutions Act (BOFIA) of 1991.
Dividend:- This is a share of profits paid to people who own parts of a company e.g. shareholders.
Interest Accrual:- This is interest due on a loan but not what paid by debtor or the creditor the record to his bank is interest accrual.
Last Resort:- This is a place or an institution to go for an assistance where this in not forthcoming from any other place e.g commercial bank go to CBN as lender of last resort when it is not possible to borrower from any other source.
Monetary Policy:- This is a major economic stabilization weapon which involves measures designed in the CBN to regulate the value, volume, cost and direction of money and credit in the economy to achieve some specified macro-economic policy’s objectives.
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