CHAPTER ONE

1.0      BACKGROUND OF THE STUDY

Banks all over the world play a prominent role in strengthening the financial system of a nation.  Their pointed roles as financial intermediaries have made them machineries for economic growth and development.

       According to Ajayi (1987)monetary policy is the combination of measures deliberately designed by the government (CBN) to control and regulate the stock or availability of money in pursuit of specific economic objectives.

       In other words, it is the discretionary control of money by the government through the Central Bank so as to achieve national economic objectives or goals.

       The regular changes in monetary policy in Nigeria has adversely affected the ability to achieve macro-economic objectives.  Small scale businesses find it difficult to secure credit or loan from Nigeria banks, where they are granted such facilities and secured at a very high cost.  The resultant effect of this instability in monetary policies measures retard economic growth and development.

       Banks generate a very high amount of their income through lending activities and where activities are paralyzed or made inactive such as a result of poor monetary policy implementation.  It spells dial consequence for banking industries, financial system and the economy as a whole.  In a situation where there is a distribution in credit expansion policy of bank, it affects the monetary stock in the economy as banks ability to create money will bell cut if not frustrated.

       This cardinal role of Nigeria banks in extending credit facilities to different sectors of the economy, and the negative effect of poor implementation of monetary policy is having on Nigeria bank lending activities have necessitate this study.  Most Nigeria banks in our country have problem of financial inadequacy which causes the banks to dishonour customer’s cheques or withdrawal, pay staff salaries and reach out loan demand/financial obligations. These resultant effect of poor performance which align the distress of some of these Nigeria banks.

1.1      STATEMENT OF THE PROBLEM

When looked at the monetary policy put in place by the monetary authorities in Nigeria, there is no doubt but to say it is mainly to ensure price stability, rapid growth and reduction of unemployment in the economy.

However, some economist in Nigeria believed that the Nigerian monetary management is faced with some problems which affected Nigeria banks’ lending operations.  Which are as follows:

i.            Poor formulation of appropriate and efficient polices

ii.           The frequent and unprecedented change in rate, minimum cash reserve, discount rate.

iii.         Inconsistency in policy implementation by the monetary authorities adversely affects commercial banks lending operations.

1.2      OBJECTIVES OF THE STUDY

The aims and objectives of this study is to determine the performance of Nigeria banks in terms of credit expansion under various monetary policy measures, the relationship that exist between interest rate and credit expansion of Nigeria banks and determine the relationship between cash reserves and credit expansion to Nigeria banks and lastly, examining the need for changes in monetary policy issues

1.3      SIGNIFICANCE OF THE STUDY

The significance of this study, is to put a chest on the inflationary rate which has been then bane of the Nigerian economy, to put measures in place in order to stabilize the economy, and equip banks on their lending operations and lastly to equip students and other researcher with data base similar to research work in the future.

1.4      RESEARCH QUESTIONS

This research will tend to answer question like;

i.            Why is monetary policy dimmed necessary in Nigeria banks lending operations?

ii.           Does a sound monetary policy encourage investment and full employment on what purview?

iii.         Does poor implementation of monetary policy have dampening effect in our economy?

1.5      SCOPE AND LIMITATION OF THE STUDY

This study is to examine the monetary policy and bank lending operations in Nigeria banks.  Because of time and financial constraints, the study will be limited to First Bank and Union Bank in Delta State.

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