This study is aimed of critically examining
the effect of banks interest rate on the economic growth in Nigeria. Relevant information was
collected from primary and secondary source. Using ordinary chai-square to
analyzed the data gathered through central bank of Nigeria. The empirical analysis
carried out showed that bank interest rate deregulation has significant and
positive impact on economic development in Nigeria. The empirical analysis
also suggest that bank interest rate plays a significant role in enhance
economic activities and as such it is recommended that monetary authorities
should put in place policy thrust that will help reduce the rate of inflation
in Nigeria. High level of inflation reduces the rate of interest and thus
discouraging people from saving.
TABLE OF CONTENTS
Title page i
Table of content
1.0 Background of the study 1
1.2 Statement of the problem 2
1.3 Objective of the study 2
1.4 Statement of hypothesis 2
1.5 Significant of the study 3
1.6 Delimitation of the study 3
1.7 Limitation of the study 3
1.8 Definition of terms 4
2.0 Literature review 5
2.1 Introduction 5
2.2 Related review 6
2.3 Time reference theory of interest rate 7
2.4 Theory of interest rate 7
2.5 Liquidity preference theory of interest
2.6 Loanable funds theory of interest rate 12
3.0 Research methodology 16
3.1 Sources of data collection 16
3.2 Research design 16
3.3 Study population 16
3.4 Sample design and procedure 16
3.5 Research instrument 16
3.6 Measurement of variables 17
4.0 Presentation and analysis of data 18
4.1 Analysis of data base 18
4.2 Analysis of data on hypothesis question 20
5.0 Summary, Conclusion and Recommendation 23
5.1 Summary 23
5.2 Conclusion 23
5.3 Recommendations 23
1.0 BACKGROUND OF THE STUDY
The term interest can simply be define as the cost of using someone else money
or viewed from the under point of view, as the price charged for allowing one to
use someone else money. The role of interest is the reward for parting with liquid
for a specific period of time.
The Nigerian Banking sector is among the most heavily regulated sector of
the Nigerian economy. The special interest of government in the banking sector
is due to its relevance in the provision of credit facilities of industries and
most importantly the provision of soft loan for small scale businesses for development
of economy in the country. As financial intermediary, banks help in channeling founds
from surplus economics regions to the deficit one’s on order to facilitate business
transaction and economic development in general. The real sectors economics are
not left out in benefit found from the surplus spenders in the economy.
Anyonwu (1997) opined that, commercial banks encourage savings. Since investments
are made out of savings, the establishment of commercial banks especially in
the rural makes savings possible home economic development is accelerated.
Bearing in mind that funds are owned by other people (the investing public
/ depositor) the banking ethic demands that such funds should be efficiently
and effectively managed in order to build and maintain the confidence of depositor
investors in the banking system and also uphold the competence and continued soundness
of the banking system to reduce drastically the risk or possibility of bank failure
The government most of ten may think its necessary to intervene in the
operation of the banking system with the intention of correcting the short comings
of the price fixing mechanism to ensure that what is commercially rational for
an individual bank is appropriately rational for all socially interest rate charged
by banks could be regulated to encouraged saving mobilization, ensure and
faster adequate investment for rapid growth and development, bearing in mind the
view of Goldsmith (1969) that the financial super structure of an economy accelerates
the migration of funds to the best user i.e. to the place in the economic system
where the funds yield the highest social return.
The opinion of Greenwood
and Jovanoric (1990) clearly approximate the view of Goldsmith (1990). They stated
that financial intermediation promotes growth because it allows a higher rate
of return to be earned on capital and growth in turn provides means to implement
costly financial structure.
According to Akiri and Adofu (2007), the exisitence of externalities and
imperfection in the financial markets of most developing economics has often
called for intervention by the government through its appropriate agent (the
central Bank in the case of Nigeria) to encourage investment and to re-channel
credit to those economic unity with high social race of returns but low
commercial rate of returns
Under the deregulated interest rate system, the market forces of demand
and supply plays a very prominent role in the determination of interest i.e to
arrive at a suitable interest role on both deposit and loans.
Interest rate being cost of money, the government by deregulation
interest intends to stop central on credit expansion by banks. If the cost of
money is high, the business sector would not borrow and when they don’t borrow,
it will go long way to reduce the inflationary tendencies associated with
This study attempts to find the probate effect of bank interest rate
deregulation on economic growth in Nigeria.
Generally, banking industry
operate on a profit base mobilizing fund from surplus sectors and lending it to
into deficit sector in which interest rate is being charged on both the bank usually
paid sector but charges higher interest when they want to lend it into deficit sector
in order to make profit for banks to fulfill this, care must be taken in
lending in order to safeguard the profitability of such banks.
OF THE STUDY
The study attempt to makes in-dept analysis of the effect of bank interest
rate deregulation on the economic growth in Nigeria and thereby assess the effect
of the charges in interests rates on saving through the structure and growth of
bank deposit implication on the economic growth.
At the end of this research work, the following opinion will be tested.
1. Hi: The high interest rate induces savings in
Ho: The high interest rate does not induces saving
2. Hi: The high bank interest rates discourage customers
Ho: The high bank interest rate does not discourage
customers from borrowing.
This study will help the bank to know whether they should be more committed
to increasing there changes on rate of interest and to know whether this will increase
there customer patronage good will and profitability. To proffer policies, to determine
the effect of lending policies on economy of Nigeria, to know the need for partial
equilibrium analysis of bank deposit management to assess the effect of the
changes in interest on saving through the implication of threat on the economy.
OF THE STUDY
The researcher therefore, that by studying the pricing decision, it will be
of benefit to the economy and individual alike, it will be of benefit to the
economy in the sense that it will as to determine approximation compensation
for labour used in production.
This study will equally enable firms to known how consumer perceive products,
the reasons for the high and low price. In addition, the study will serve as reference
point for future researchers relevance area.
OF THE STUDY
It is highly imperative to state categorically that this study paves way for
others to further studies into areas that are not adequately covered by this
researcher. Also there is room for further research into area cover by the researcher.
OF THE STUDY
Apart from the fact the writers intend to have detailed study of the above
mentioned target area, writer is limited to these areas because of the following
1. Time: - It is indeed pathetic that
the researcher have a very limited time to carry out the research therefore,
the writer needs to manage the source that is available in order to finish the research
within the allocated time.
2. Financial Constraint: - The
researcher would have loved to moved wider but this is not possible due to limited
amount of money the researcher have, the researcher spirit all he could to make
this work successful.
3. Inadequate date: - This research work
will be limited to the volume of information acquired through materials like national
dailies, periodic journals, text books, internet materials and write – up on related
4. Uncooperative Attitude of Respondents:
- As it unduly know that banks are often busy. So questionnaire
administrations were not answered very well because majority of the staff were occupied
with the customers. This constraint might be regard as that of non-response during
Interest Rate: - An interest rate is
the rate at which interest is paid by a borrower for the use of money that they
borrow from a bank as loan or overdraft etc.
Deregulation: - Is the removal or
simplification of government rules and regulations that constraints the operation
of bank on interest rate for loan given.
Lending: - Is concerned with granting
of credit facilities to customers.
Normal Interest Rate: - This is the
interest on the face value or coupon rate in the case of loans floated as securities.
Real Interest Rate: - This is the
interest adjusted for the effect of inflation. Real interest is only used in performance
Prime Lending Rate: - This is the rate
banks lend to their first class loan risk customers. For other customers the lending
rate will be higher, the difference representing a premium for risk under taken
by the lender.
Interest rate Spread: - This is the
differences between lending rate and borrowing rate.
Borrowing Rate: - Borrowing rate to a banker’s
customer the “borrowing rate” i.e. bank’s lending rate.
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