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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.
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