This research work is centered on interest rate deregulation. The effect on commercial banks in relation to interest rate on savings. The broad objective is to impact the interest rate deregulation on commercial  banking in Nigeria  and to critically examine and analyse the performance of savings to interest rate on commercial banking in deregulated economy.

Therefore, our research was based on sampling of survey, in carrying out the findings. Savings was used as dependent variables while interest rate was used as independent variables in the sampling survey.

The recommendation is that policy maker should be able to encourage interest rate so as to boost savings and increase the level of economic activities at the long run.



Title page                                                                         i

Certification                                                                     ii

Dedication                                                                       iii

Acknowledgement                                                            iv

Abstract                                                                           vi

Table of contents                                                             vii



1.0      Introduction                                                             1

1.1   Background of the study                                          1

1.2      Objectives of the study                                            5

1.3      State of the problem                                                       6

1.4      Scope of the study                                                  7

1.5      Significance of the study                                                 7

1.6      Plan of the study                                                     7

1.7      Hypothesis                                                              8



2.0      Literature review and theoretical framework            9

2.1.1  Interest rate and savings structure in Nigeria         12

2.1.2  Era of administered interest rate                            13

 (Regulatory Period)

2.1.3  The era of free banking (laissezfaire 1894-1952)     14

2.1.4  The era  of limited banking (1952-1958)                         15

2.1.5  The intensive regulatory period (1958-1986)          15

2.1.6  Problem associated with  regulatory control           17

2.1.7  The nature and characteristics of Deregulation

in Nigeria  Banking system (1987 till date).             18

2.1.8  Structure of interest rates                                       22

2.1.9  The phenomenon of real interest rate

and it implication on the Nigeria  economy              29

2.2        Saving mobilization                                                        32

2.3        Theories of interest rate                                          37

2.3.1  Time Preference theory                                           37

2.3.2  The classical theory of interest                               41

2.3.3  The  loanable fund theory of interest                      45

2.3.4  The theory of interest rate by the monetary school  48

2.3.5  Determinant of interest rate by the

monetarists (Friedman  milton)                               53



3.1   Research methodology                                             59

3.2   Questionnaire                                                          59

3.3   Personal interview                                                   60

3.4   Personal observation                                               60

3.5   Research approach                                                  60

3.6   Source of data                                                          61

3.7   Method of investigation                                           61




4.0   Analysis of Findings                                                        62

4.1      Introduction                                                             62

4.2      Analysis of sampling survey                                     62



5.0      Summary, conclusion and recommendation           76

5.1   Summary                                                                         76

5.2      Conclusion                                                              77

5.3      Recommendation                                                     79

Bibliography                                                            81













Prior to the  structural adjustment programme (SAP) the  productivity of the  banking could be described as mixed. While some of it’s effect were statutory other could be considered counter productive. The banking regulation has some statutory effect on the banks and their customers and this positively influenced the viability of banks in Nigeria. Recollecting the constant bank failure during the Laisez-fair banking practices of the 1940’s and 1950’s will appreciate but only of them survived beyond two years. 


During the free-for all banking practice of the period prior before the banking ordinance of 1952, the failure of laissez fair banking encouraged the factors which led to it’s own bank failure. The factors include inadequate capital and staff, structural handicap and poor management. This is  led to the 1948 D. Patron enquiry which recommend a banking ordinance be issued to regulate banking practices.


Following the ordinance and subsequent banking laws the central bank act and the 1969 banking act, banks failure gradually disappeared from the Nigeria secure. Thus the banking regulation led to banks viability promotion, encouragement in the banking industry investment increment and consequent growth in banks and services they rendered.


Despite the benefit just highlighted, a member of problem arose from the banking regulations, most especially in the period immediately before structural adjustment programme (SAP) and questioned the entire mode of banking regulation. The main approach to banking regulation, in the pre-SAP involves the use of direct controls. This approach led to rapid increase in number of banks since the 1970’s, hereby increasing the burden monitoring individual banks and therefore made enforcement or regulation more difficulties.


Furthermore, the use of direct-control resulted in declining competition in the banking industry as each bank market share became strictly determined by credit ceilings and administratively fixed interest rates. However, interest is the main focus of the researcher and above all regulation gave  too much  gave too much room to fraudulent and corrupt practices within the system. The central banks of Nigeria has also fixed interest rate at very low rate. Thus the real rate of saving became negative and depositors are reluctant to save.


The central bank of Nigeria therefore decided to allow the market force of demand and supply to determine the rate of interest.   And therefore this led to the introduction of the  structural adjustment programm (SAP) which commenced it’s operation most earnestly wit the liberalization of interest rate and banking structure on August 1st and September 29th 1986, to assigned a pivoted role  market forces in the  pricing and allocation of resources for development. At the inception of the Structural adjustment programme (SAP) the vision behind it was a highly deregulated one, where market forces would depend directly on economic activities.


The measure of deregulation in the banking sector covers areas such as:

(a)         Interest rate

(b)         Licensing of new banks .

(c)         Withdrawal of public deposit

(d)        The use of an auction method in the issuing of the  treasury security in the banking industry. However, the banking industry. However, the banking industry deregulation has encourage saving mobilization and improved access to banks loans. It has also brought about a significant increase in the number of banks operating in Nigeria. There is consequently keener competition in the industry resulting from the emergence of a range of new product. On the  other hand deregulation has led to a number of problem. Among there are the high cost of banking with its attendant adverse impact on domestic investment and genera business services has not improved to the extent anticipated while fraudulent practices in the banking industry have escalated.


Finally, the banking sectors which is said to be the state of health of an economy will maintain his state depending on it’s ability to generate growth ensure price stability  boost employment and enhance equitable distribution of income in the medium to long term. Therefore, the success of this section will determine to a large extent, the success of the  deregulation of the  banking sector especially interest rate (the success of the  deregulation of banking  sector especially interest rate (the focus). This success can be determine by making a thorough assessment of the performance of his sector in terms of how interest rate deregulation has induced saving mobilization and encouraged investment via other factor of economic development and brought an end to development and brought an end to the era of aim chain banking.


The banking industry is among the most heavily regulated sector in developing and developed economy being he provider of finance, which is often viewed as the lubricants of the economy.

The banks contributes to economic development by accepting funds from the surplus economic unit and  making available loans and advances to deficit units to facilities business transaction and general development


According, they are not free to do what they with finds deposited with them. The funds are expected to be managed according to the laid down statutory requirement by the  government or monetary authorities. It becomes clearer that banking sector needed a comprehensive macroeconomic reforms to address the prevalence of gap in both product and actor market i.e saving or minimize these distortions, economics and bankers have called for deregulation of financial system. The heavy debt burdens and dwindling foreign exchange earnings in Nigeria, has also led to the adoption of policies designed to deregulate the financial system.



The broad objective of the study is know the impact of interest rate deregulation on commercial banking in Nigeria. This is to critically examine the analyse the performance and prospects of the commercial banking in a deregulated economy.

While the specific objective are as follows:

(1)        To examine the relationship between interest rate deregulation and banking services.

(2)        To examine the performance of the banking sector before the after deregulated period in Nigeria.

(3)        To examine the comparison regulated and deregulated interest rate, the effect on commercial banks.



To thoroughly assess the performance of banking sector most especially under the deregulation of interest rate era. One must realize the fact that the following problems were on ground even right from the regulation era.


The banking sector failure during the laissez- fair banking practices through capital inadequacy and staff, structural handicap and poor management in the 1950’s


The use of direct control which led to rapid increase in number of banks since the1970’s hereby enforcement and regulation more difficult. The declining competition in the banking industry as each market share became strictly determined by credit ceilings and administratively fixed interest rates. The high cost of banking lending with it’s attendant adverse impact on domestic investment and general business climate. The stagnancy of the banking quantity as to what in anticipated and the escalated  fraudulent practices.



The scope of this study is limited to the commercial banking in Nigeria.



 This topic becomes a necessary thing of research due to the pivoted role assumed  by the  banking sector (being the health of the  economy) on economic  development and growth, which  can be enhanced depending on the policies and decision of government and authority incharge.


Hence, the analysis and examination of interest rate deregulation becomes a necessity.



However, in all, this research work comprises of five chapters.

Chapter one, as already seen is the introduction chapter, revealing the background of the study, objective state of problem, hypothesis, significance of the study, scope of the study, plan of the study.


Chapter two, will be a literature review where past researcher’s work and text on the same topic or related topic will be constructed and their views discussed.


Chapter three, will be the methodology of the study. That is  the research  worth specification of models, presentation and analysis of the evaluation criteria and the  nature and source of data.


’While finally, chapter five will be the summary, recommendation and the conclusion of the project work.



Ho. That deregulated interest rate in Nigeria has significant effect on savings.

H1: That lending  rate under deregulation has significant impact on investment.


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