This study examined the bank lending policies and financial performance of the banking industry between 2000 and 2010. It specifically determined the effect of lending rate and monetary policy on the performance of banking industry in Nigeria and analyzed how banking lending policy affect the performance of Nigeria banking industries. This study utilized primary data econometrics in a regression where time-series and quantitative design were combined and estimated. The result confirmed the lending rate and monetary policy rate has significant and positive effect on the performance of Nigeria banking industries. The implication of these is that lending policies are true parameters of measuring bank performance, we therefore recommend that government should adopt policies that will help the Nigeria banking industries to improve on their performance and there is need to strengthen bank lending policies through effective and efficient regulations and supervisory framework.  


Title Page                                                                                  i        

          Certification                                                                             ii       

          Dedication                                                                                iii      

          Acknowledgement                                                                     iv      

          Abstract                                                                                    v       

          Table of Contents                                                                      vi

          Chapter One: Introduction                                                      1       

1.1             Background to the Study                                                           1       

1.2             Statement of Problem                                                                4

1.3             Research Questions                                                                             5

1.4             Objectives of the Study                                                             5

1.5             Statement of Hypothesis                                                           6

1.6             Significance of the Study                                                          7

1.7             Scope of the Study                                                                    8

1.8             Limitations of the Study                                                           8

1.9             Definition of Terms                                                                            9

Chapter Two: Literature Review                                             11

2.1             Introduction                                                                             11     

2.2             Concept of Banking in Nigeria                                                  12

2.3             Basic Principles of Bank Lending                                              15

2.4             The Impact of Bank Lending on the Nigerian Economy             19

2.5             The Control of Banks by the Central Bank                                 22

2.6             Managing the Banking Port-Folio                                             25

2.7             Risk Assessment and Credit Analysis                                                  30

2.8             Sources of Credit Formation                                                     32

2.9             Financial Constraint                                                                 35

2.10        Major Financial Statements                                                      36

2.11        Profit and Loss Account                                                            38

2.12        Funds Flow Statements and Cash Budget                                  38

2.13        Cash Budget                                                                                       39

Chapter Three: Research Methodology                                   41

3.1             Introduction                                                                             41     

3.2             Research Design                                                                       41     

3.3             Population of the Study                                                            41

3.4             Sample and Sampling Technique                                               42

3.5             Instrument of Data Collection                                                   42     

3.6             Method of Data Collection                                                        43     

3.7             Method of Data Analysis                                                           43               

Chapter Four: Data Presentation, Analysis and Discussion      46

4.1             Introduction                                                                             46

4.2             Data Presentation and Interpretation                                         47

4.3             Data Analysis Hypothesis Testing                                              56

4.4             Discussion of Findings                                                              61

Chapter Five: Summary of Findings, Conclusion and Recommendations                                                              62

5.1             Introduction                                                                              62

5.2             Summary of Findings                                                                62

5.3             Conclusion                                                                                64

5.4             Recommendations                                                                              64

References                                                                                67

Appendix I                                                                                69     

Appendix II                                                                              70





The financial system of most developing nations have come under stress as a result of the economic stock of the 1980s. the economic stocks largely manifested through initiate distortions of sizes of the financial system relative to non-financial magnitude (Davidson & Gabriel, 2009). Rasheed (2010) states that Nigeria’s economy saw different interest rate for different sectors in 1970s through the mid-1980s (Regulated Regime 1960 – 1985). The preferential interest rates were based on the assumption that the market rate, if universally applied, would exclude some of the priority sectors. Interest rates were, therefore adjusted periodically with visible hands to promote increase in the level of investment in the different sectors of the economy. For example, agriculture and manufacturing sectors were accorded priority and the commercials banks were directly from the Central Bank of Nigeria to charge a preferential interest rates (vary from year to year) on all loans and advances to small-scale industries. Since 1986, the inception of interest rates deregulations, the government of Nigeria has been pursing a market determined interest rate region, which does not permit a direct state intervention in the general direct economy (Adebiyi & Babatope-Obasa, 2004).

Lending which may be on short medium or longtime basis is one of the services that deposit money banks do render to their customers. In other words, banks do grant loans and advance to individuals, business organizations as well as government in order to enable them embark on investment and developed activities as a means aiding their growth in particular or contributing towards the economic development of a country in general (Felicia, 2011).

Banks are the most important savings, mobilization and financial resource allocation institutions. Consequently, these roles make an important phenomenon in economic growth and development. In performing these roles, it must be realized that banks have potential scope and prospect for mobilizing financial resources and allocating them to productive investments and return promote their performance. Therefore, no matter the source of the generation of income or the economic policies of the country, bank will be interested in giving out loans and advances to their numerous customers bearing in mind, the three principles finding their operation which are profitability, liquidity and solvency (Adolphus, 2011).

However, banks decisions to lend out are influenced by a low of factors such as the prevailing interest rate, the volume of deposits, the level of their domestic and foreign investment banks liquidity ratio, prestige and public recognition to mention but a few.

Lending practice in the world could be traced to the period of industrial revolution which increase the price of commercial and production activities thereby bringing about the need for large capital outlays for projects. Many managers of industries were unable to meet up with the financial requirement and thereby turn to the banks for assistance (Ezirim, 2005). However, the emergence of banks in Nigeria where Zenith Bank was one of, through the lending after the establishment of the African Bank Co-operation in 1873 (ABC) during the time lending practice in Nigeria was biased and based on discrimination and could not be said to be a good lending practice of the only colonial banks were given loans and advances. And these leads to the establishment of indigenous banks in Nigeria, prior to the advance of Structural Adjustment Programme (SAP) in 1986. The lending practice of banks become strictly regulated under the close surveillance of the banks supervisory bodies the SAP period brought about relaxation of the stringent rules finding banking lending.  

The Bank and other Financial Act Amendment (BOFIA) 1998, requires banks to report large borrowing to the CBN. The CBN requires that their total value of a loan credit facility or any other liability in respect of a borrower, at anytime, should not exceed 20% of the shareholders funds union paired by losses in the case of commercial banks (Felicia, 2011). 


This study will attempt to address some specific issues that serve as barriers to the application of bank lending policies with respect to the following questions amongst others.

i.                    Does the level of loans granted to customers dependent on the degree of reliance banks have no the security of customers?

ii.                 Does the high rate of interest on lending scare investors from obtaining loan and advances from the banks?

iii.               What constitutes government (CBN) regulations on cash reserve requirement and liquidity ratio on loans and advances?

iv.               Which sector do you consider most profitable for your banks to invest in?



The study shall be guided by the following research questions;

1.         What are the lending policy objective and financial performance in the Nigeria bank industry?

2.         Does lending policy enhance financial performance in Nigeria?

3.         What are the issues that are relevant to the effective maintenance of lending policy in Nigeria?

4.         What are the challenges facing the lending policy and financial performance and how they could be tackled in Nigeria?


The objectives of the study are to ensure that banks can perfectly compete locally. The following are some of the objectives of this study:

1.                  To ascertain the level of reliainance bank place on the security supplied by customers before granting them loan.

2.                  Find out if the interest rate demanded by the banks restricts the members of customers intending to borrow from the bank.

3.                  To know the sector that is more profitable for banks to invest in by highlighting the sector with the highest default.

4.                  To know the extent to which the cash reserve requirement and liquidity ratio of Nigeria banks affect its lending policies.

5.                  To highlight the policy of maturity pattern of loan and advances so that the particular area the banks lay emphasis on will be known with ease.

1.5       STATEMENT OF HYPOTHESIS          

The hypotheses for the study are in null and alternative form; where (HO) null hypothesis implies a rejection of the alternative hypothesis and alternative hypothesis (HI) implies rejection of the null hypothesis. And this research was guided by the following hypotheses;

Hypothesis One

HO:     The level of loans granted to customers is not dependent on the degree of reliance banks have on collateral security supplied by customers.

HI:      The level of loans granted to customers is dependent on the degree of reliance banks have on collateral security supplied by customers.

Hypothesis Two

HO: The interest rate demanded by banks does not restrict the number of customers intending to borrow from the bank.

HI:      The interest rate demanded by banks does restrict the number of customers intending to borrow from the bank.


Hypothesis Three

HO: Cash reserve requirement does not affect its lending policies in banking industries.

HI:      Cash reserve requirement affect its lending policies in banking industries.


This research work will attempt to investigate the contributions of bank lending policies in Nigeria and Zenith Bank of Nigeria Plc was used in this study. The significance of this study is to examine the extent to which bank lending has geared up the growth of the Nigeria economy through loan and advances for investment. The following are some of the importance of the study;

1.                  It helps the surplus sectors of the economy to channel the abundance fund to the deficit unit.

2.                  Lending policies helps to minimize the rate of bad and doubtful debts in the banking sector.

3.                  The bank lending policies aids easy repayment of loan i.e. the security deposited with the bank motivates the borrower for easy payment.


The area of importance as far as this research work is concerned is that this research work will cover bank lending policies generally against the background of the Central Banks of Nigeria’s monetary policy circulars, and guidelines issued periodically to ascertain the effectiveness of banks lending policies with particular references to Zenith Bank of Nigeria Plc. It shall also cover the extent to which loans and advances over a period that is carefully chosen to reflect the lending pattern.

Challenges and implications with the period, for example, they check the efficiency of banking operations, the maturity pattern of loans and advances, method of payment and the percentage of bad and doubtful debts by the debtors as recorded in the schedule of returns to the Central Bank of Nigeria.


This project work is centered on the banking industry in Nigeria. It is concentrated on bank lending policy as it aids in the advancement of development of a country. However, some of the limitations identified in carrying out this research are as follows:

i.          Insufficient books in the library limited the effort of the researcher in carrying out an in-depth research on the project work.

ii.         The rules and regulations guiding the case study of the researcher that is, Zenith Bank Plc did not allow the researcher to carry out personal observation and probably interview bank lending officers.

iii.       Another limitation is that some of the information or answers given in the questionnaire are incomplete.


1.         Maturity Pattern: This is the time taken for the loan and advances given by the bank to mature.

2.         Analysis: A systematic examination and evaluation of data or information, by breaking it into its component part to uncover their interrelationship.

3.         Bank: An establishment authorized by the government to accept deposit, pay interest, clear cheques, make loans, act as an intermediary in financial transactions and provide other financial services to its customers.

4.         Loan: Written or oral agreement for a temporary transfer of a property usually cash from its owner (the lender) to a borrower who promises to return it according to the terms of the agreement, usually with interest for its users.

Note: If the loan is repayable on demand, it is called demand loan. If payable in equal monthly payments, it is called installment loan. If payable in lump sum on the loans maturity, it is called time loan. Loans are characterized into; customer, commercial and industrial loan, construction and mortgage loans, secured and unsecured loans.

5.         Lending Policies: Standard or guidelines that the employees must observe in granting or refusing a loan request.

6.         Cash reserve requirement: Minimum amount of cash or cash equivalent (computed as a percentage of deposits) that banks and other depository institution are required by law to keep on hand and which may not be used as lending or investment.

7.         Liquidity Ratio: Calculation of a company available cash and marketable securities agents outstanding debt. A high ratio indicates a company with a low risk of default and vise-versa.


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