ABSTRACT
The
study conducted is based on the stance of commercial bank lending in Nigeria, via
the workings of the monitory policy accordingly. In essence regulatory policy
in Nigeria
has been conducted under wide ranging economic environments since the
establishment of the Central Bank in Nigeria over 30 years ago. However,
in recent years the Federal Government has made conscious and determined
efforts to set and attain a high level standard of macro-economic aggregates in
order to high light, the effect of regulatory policy on commercial bank lending
in Nigeria.
In
accordance, the study has been able to ascertain that due to present
challenging conceptual and technical problems, these efforts have not shown
their full weight on the improvement of the economy.
The
purpose of this study is to help in identifying and ascertaining the ways through
which regulatory policy changes are effected on commercial bank lending
accordingly. In the course of this, the nature of various regulatory policy instruments employed from 1996-2003
will be reviewed: further examining Nigerian Commercial Bank lending structure
in accordance to the regulatory policy
designs. Also the study aims at finding possible defaults in giving out
commercial
banks
loans.
Also,
the significance of the study itself dwells on this ability to examine the
conceptual and practical problems, encountered in the mechanisms of bank
lending in commercial banks via its regulatory posture in Nigeria. This
is significantly done where the role and effects of regulatory policy measures
are properly explained in the study.
More
so, the relevance of the study is further reinforced by the fact that Nigeria has
been experiencing a depressed economy especially during the period under review
and it is through these key sectors which have been tagged. ““The preferred and
less preferred sectors” that the deteriorating situation can be reversed.
The
collection of data for the study was generated mainly from secondary data and
subsequent empirical analysis by ordinary least square method. The approach is
in testing the hypothesis of aggregate money supply in the economy against
total loans and advances of institutional banks accordingly, via the estimation
of regression equation in the study for a more accurate estimation this model
design is adapted to use of a simple linear equation.
The
major limitation of the study was that of data collection. Since data was
collected from various publications therefore personal interaction and
collection of data provide difficult. Also the problem of obtaining up to data
statistics impeded the study seriously, as some of the data were not available
as at the period of conducting the study.
Finally,
the study has been able to come to an affirmed conclusion that regulatory policy through with its constraints has
contributed significantly to creating an enabling environment for commercial
banks disbursement of loans and advances. However there is still much to be
done to help plug the loopholes that still exist, in the course of
regulatory policies trying to prevent
excessive growth in liquidity in the Nigeria Banking System.
TABLE OF CONTENT
Title
Page
Certification ii
Dedication iii
Acknowledgment iv
Abstract vi
Table
of Contents vii
CHAPTER ONE
1.0 Introduction 1
1.1 The Problem Analysis 4
1.2 Purpose of Study 5
1.3 Statement of Research Questions 6
1.4 Statement of Hypothesis 7
1.5 Relevance of Study 8
1.6 Scope and Limitation of the Study 9
1.7 Significance of Study 9
1.8 Definition of Terms 9
CHAPTER TWO
2.0 The Nature of Regulatory Policy Theory 12
2.1 Regulatory
Policy Formulation in Nigeria
17
2.2 Regulatory
Policy in Nigeria
(1995-Till Date) 19
2.3 Formulation
and Administration of Regulatory Policies in Nigeria 28
2.4 Basic Principles of Lending 29
2.5 Techniques
and Instrument of Regulatory Policy management in Nigeria 34
2.6 Effectiveness
of Regulatory Policy on First Bank Plc Lending 41
2.7 Implementation of Regulatory Policy in FBN
Plc 46
Chapter Three
3.0 Methodology 49
3.1 Sources of Data 49
3.2 Restatement of Research Questions and
Hypothesis 49
3.3 Method of Data Collection 50
3.4 Design of Research Model 51
3.5 Limitation of Data Collection 52
CHAPTER FOUR
4.0 Introduction 53
4.1 Presentation and Analysis of Data 54
4.2 Distribution of Commercial Banks 56
4.3 Bank Credit to Private and Public Sector 59
CHAPTER FIVE
5.0 Summary, Conclusion and Recommendation 61
5.1 Summary 61
5.2 Conclusion 65
5.3 Recommendation 66
5.4 References 70
CHAPTER ONE
1.0 INTRODUCTION
Regulatory policies in Nigeria has been conducted under
wide ranging economic environments since the establishment of the Central Bank of”
Nigeria (CBN) over thirty year ago. However, in recent year, the Federal Government
has made conscious and determine efforts to set and attain a high level
standard effort of macro-economic aggregates in order to highlight the impact of
regulatory policy on commercial bank lending in Nigeria. However, due to present
challenging conceptual and technical problems, these efforts have not shown their
full weight on the position of the economic.
In essence, right from the formative years of the Central
Bank of Nigeria
to the present times of stringent regulatory control, regulatory policy has
become a veritable means of achieving aggregate economic potentials. In the
specific environment of the 1970's the main objectives of regulatory policy were
the maintenance of relative price stability and a healthy- balance of payment
position, as well as the acceleration of the space of economic development.
Generally, regulatory control depended on the use of'
directory regulatory instruments Such as
selective credit control and credit ceilings, interest rate controls,
prescription of cash reserves requirements, exchange control and imposition of
special deposits.
Then the use of market-based instrument such as open-market
operations were not feasible, because of extreme narrowness and underdevelopment
nature the financial market, the inadequate supply of the relevant debt
instruments and the deliberate restraint on rates.
Along the line, the most popular instrument of regulatory policy used was the issuance of credit
rationing guidelines took the form of setting the rates of change for the
aggregate and components of commercial bank loans and advances. Between April
1972 and march 1976, the use of aggregate credit ceiling was dropped for
specifications on Sectoral distributions of credit. Furthermore, the focus n sectoral
distribution of bank credit throughout the period was to stimulate the
productive consequently stem inflationary pressures. In essence a number of
special deposits were imposed on the bank to reduce their fees reserve and
creating capacity. They also serve quite effectively as instruments of regulatory
control, leading accordingly td a recession oil boom of the early 80's.
The situation was particularly serious between 1982 and
1985 when stringent economic controls were not effective in arresting the
deteriorating situation. Inevitably, a period of economic adjustment bad to
come with the introduction of the Structural Adjustment Programmed in 1986. It
saw the introduction of an inevitable economic adjustment in which memory
policy appear to have borne a relatively share of the burden of adjustment
process embarked upon by the federal Government in July 1986 was to restructure
the production and consumption patterns of the economy, through the elimination
of price distortion and reduction of the over - dependence of the economy on
the export of crude oil and imports of' raw materials and consumer goods. The regulatory
control framework remain essentially the
same, except that some complex selective credit controls and the liquidity and
cash requirements were sill in vogue at the inception of the Programme were
design to dampen inflationary pressures and restrict the demand for available
foreign exchange resources.
The effectiveness of regulatory policy in Nigeria on
commercial bank leading in the 1990's, will depend to a large extent on
reducing to the barest minimum constraint of yesteryears. Starting from 1990,
the ceilings on bank credit expansion were no longer to accommodation
exceptions as before bank credit was to include loans and advances, and
investments including leasing assets and net inter bank float.
Another important step was the introduction by the central
bank of a set of prudential guidelines for licensed banks. Three other policy
actions in 1991 worth mentioning are: determination of interest rates by market
forces, prescription of a maximum margin between the bank's average cost of the
regulatory policy, which relies on the
control of money stock in order to influence financial and economic activities.
Finally, the issue to be examined in this study is the
impact. These policies have had on commercial bank lending, highlighting the use
of economic indicators and their outstanding signals.
1.1 THE PROBLEMS ANALYSIS
i. Regulatory policy in
the current Nigeria context encompasses action of' the Central Bank that affect
the availability and cost of First Bank Plc reserves balance and thereby the
overall regulatory and credit condition
in the economy.
ii. The regulatory policy
is however not the only macro-economic policy tool.
iii. The effectiveness of regulatory policy has infact depended crucially oil the
stance of fiscal policy.
iv.
Exchange rate policy
has also exerted an important influence on the economy, particularly from
supply side, quite apart from enhanced flexibility that a floating rate regime
could, in principle lend to the conduct of regulatory policy.
v.
The First Bank Plc
Industry is involved in the business of providing financial service to the
Nigerian economy, thus the Central Bank. Policy stance on money and the
financial system affects First Bank lending performance.
vi.
The Inadequacy of
funds for capital development.
vii.
The ever rising
increase in recurrent expenditure.
viii.
The burden of
providing basic amenities for public officers.
1.2 PURPOSE OF STUDY
The study intends to identify the ways through which regulatory
policy impacts are felt on commercial
batik leading in Nigeria.
In essence the study hopes to review the nature of various regulatory policy instruments employed from 1985 to 1995.
Furthermore , the Study intends examining Nigeria commercial bank leading
structures to accordance to the regulatory policy design.
Finally, the study aims at finding possible default in
giving out commercial bank loans and in finding Solutions to identified
problems, making recommendations where possible.
1.3 STATEMENT OF TENTATIVE RESEARCH QUESTIONS
However, looking more incisively a whole performance
Picture of the industry can be obtained in -areas of savings, mobilisation,
lending, investments etc are assessed separated of all these no other area has
been known to be subject to much evaluation than LENDING. In accordance, these
are some research questions which will help to highlight the performance of regulatory
policy on commercial bank lending in Nigeria as follows:
1) Have regulatory policies been able to actualizes it§ position
in the portfolio management of commercial Banks in Nigeria?
2) Has the
sectoral allocations of loans been desirable?
3) Do banks lend enough on the aggregate in accordance to regulatory
policies?
4) Is the relationship between aggregate money supply and
commercial banks loans and advances pronounced?
1.4 STATEMENT OF TENTATIVE HYPOTHESIS
In accordance, commercial banks have been known to “pool”
the funds of saver re idle funds in economy and transfer them by way of loans
and advances, to area of the economy which are prod6etive but lack the required
funds.
The Central Bank of Nigeria takes advantage of Commercial
Banking (First Bank) functions to direct regulatory policy to either affect the
i. Depositors
saving
ii. Loans and
Advances
This has obliviously led by the statement of the following
hypothesis to evaluate the limits of the relationship.
H0: There is no relationship between Aggregate
money supply and First Bank loans and advances.
H1 There is pronounced relationship between
the Aggregate money supply and commercial bank (First Bank) loans and advances.
1.5 RELEVANCE OF STUDY
The study is envisaged to be of utmost importance for its
attempt in examining the conceptual and practical problems, exposing the
possible difficult challenges encountered in the mechanism of bank lending in
First Bank via its regulatory posture in
Nigeria.
This is significantly done when the role and effect of regulatory policy measures and properly understood.
Therefore, the fact that this study is based mainly on the
uniqueness of First Bank lending in recognition of public confidence within the
Nigerian set up. Also the relevance of” the study can be further reinforced by
the fact that Nigeria has been having a depressed economy especially during the
period under review and it is through these key sectors which have been tagged “the
preferred and less preferred sectors” that the deteriorating situation can be
reserved.
1.6 SCOPE AND DELIMITATIONS OF TIIE STUDY
For this research study, the Nigerian economy Is the focus
of this study. Therefore, it shall analyse tile impact of regulatory policy on First Bank lending in Nigeria.
Firstly from July 1986 to November 1998 which saw a radical
departure from the dictum of control in economic and regulatory management with the adoption of structural
Adjustment programme.
Secondly, it is tile brief phase since late November 1993
to date, under this phase, it sliall focus Oil the selective reimposition of
administrative control in economic and financial managernent.
1.7 SIGNIFICANCE OF STUDY
This study is envisaged to be of utmost importance for its
attempt in examining the conceptual and practical problems, exposing the
possible difficult challenges encountered in the mechanism of bank lending in
First Bank included in its regulatory posture in Nigeria.
1.8 DEFINITION OF THE TERMS
The following terminologies were consistently relevant to
this write up:
Banking Policies:
these are rules, regulation, directives
and procedures from government to guild and control the activities and
transaction in the banking system and other financial institutions.
Offshore Banking:
This refers to the banking activities of a
bank outside the geographical bounding of its nation.
Economic and
Stabilization Act of 1982: These centered
a package of fiscal, monetary and exchange control measures much aimed at
conserving the country’s foreign exchange.
Aim Chair
Banking: This is the banking system
whereby all the banks employers stay comfortable within the banking premises
for the depositors to deposit their money as opposed to the banking whereby
banks market for depositors which come into existence after the structural
adjustment programme.
Regulation/Monetary
Authorities: This include the country bank
of Nigeria/Nigeria deposit insurance co-operation on Federal Ministry of
Finance who are involved in mentoring and the regulation of monetary system.
Apex Bank: This refers to the central bank of Nigeria.
Structural
Adjustment Programme: This is a programme
introduced in 1986 by Gen. Ibrahim Babangida in order to restructure the Nigeria economy
from strangle hold of the regulation.
Decree 24 of 1991:
This refers is the central bank of Nigeria and
other financial institution decree of 1991 (BOFID)
Decree 25 of 1991: This decree give legal banking to the establishment of
primary mortgage financial institution.
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