THE IMPACT OF MONETARY POLICY ON THE LIQUIDITY OF COMMERCIAL BANKS

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ABSTRACT

The study emphasized on the relevant of the banking industry and development explores economic growth and the structural change in monetary policy in Nigeria. The first chapter trace the introduction of the liquidity position of commercial bank’s its effectiveness of monetary policy was identified. These include the inadequate of banking industry itself. Conflicts of monetary objectives and targets and the Nigeria economy witnessed both monetary stability and economic property. This was also further discussed broadly in chapter two including the factors that are containing monetary policy in Nigeria. The data for the study were collected by the use of personal interviews; the data collected were tabled down, discussed and analyzed using sample parentage. Based on the findings it was discovered that the federal government as the central bank of Nigeria (CBN) has implemented as new monetary policy on all banks that cannot meet the CBN requirement which is 25 billion naira implemented. These factors have the role in the developing economy like Nigeria as a result of the following reasons (1).Poor banking habit. (2).Policy asymmetry (3).Inadequate securities (4).Lagged response. These also led to the problem of monetary policy management in Nigeria. This can be summarized as follows: (1).The issue of the money outside the banking system (2).The role of the banking industry (3) The problem of the lingering distress in the banking industry

TABLE OF CONTENTS
Title………………………………………………………………………………..i
Approval…………………………………………………………………………..ii
Dedication…………………………………………………………………………iii
Acknowledgements………………………………………………………………iv
Abstract……………………………………………………………………………v
Table of content………………………………….………………………………vi
Chapter One : Introduction
1.1 Background to the study…………………………………………………1
1.2 Statement of the problem………………………………………………..3
1.3 Objective of the study…………………………………………………….3
1.4 Research Questions………………………………..…………………….5
1.5 Significance of the Study…………………………………………………5
1.6 Scope and Limitation………………………………..……….……………6
1.7 Organization of the Study…………………………………………………6
1.8 Operational definition of the terms……………………………………….7
Chapter two: Literature Review
2.1 Concept of Monetary Policy………………………………………………9
2.2 Objective of Monetary Policy……………………………………………11
2.3 Instruments of Monetary Policy…………………………………………13
2.4 Factors Constraining Monetary Policy in Nigeria……………………..17
2.5 Liquidity Management in Monetary Policy…………………………….19
2.6 Management and Implementation of Monetary Policy………………20
Chapter Three: Research Methodology
Introduction……………………………………………………………….22
Primary Data………………………..……………………………………22
Secondary Data…………………………………………………………..22
Sample Size………………………………………………………………23
Instrumentalization……………………………………………………….23
Method of Data Analysis ……………………………………………….23
Population of Study……………………………………………………..24
Method of Data Collection………………………………………………24
Validity of Instruments……………………………………………………24
Statistical Technique…………………………………………………….25
Chapter Four: Data presentation and analysis
4.1 presentation of Data…….………………………………………………26
4.2 Analysis and Interpretation of Data…………………………………….26
Chapter five: findings, summary, conclusion and recommendation
5.1 Findings………………………………………………………….……….36
5.2 Summary…………………………………………………………………37
5.3 Conclusion………………………………………………………………..38
5.4 Recommendations……………………………………………………….39
Bibliography……………………………………………………………………..40
Appendix…………………………………………………………………………41

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Managing an economy entails articulate, well meaning strategies and devising various policies and measures that ensure efficient utilization of nation resources with a view to promoting economic growth and a bank is considered liquid when it has asset and investment in security that are easily reliable at a short notice without a loose to the bank together with the ability to raise find from the other source to enable it to meet its payment obligation and maintaining domestic and external sector stability.
Liquidity management of a commercial bank is a very vital issue in the banking industry. It is the ability of a bank to manage its liquidity position so that neither the liquidity nor the profitable will suffer. There has occurred shift from a region of passive government intervention in various markets towards greater reliance on market face in the allocation of goods, services and financial resources.
In creating or operating current economic policy like; monetary fiscal policy, reserved ratio and liquidity ratio etc. Therefore conscious effect have been taken made by the monetary authority to generally separate the various controls which formed the basic past economic policies have made worth wide. The system of control on the prices of commodities has since ended and interest rates have been totally deregulated while the market for foreign exchange has been in operation since 1986.
The role of the monetary and financial sector in promoting the rapid development of the real sector of the economy cannot be over – emphasized as apse of the economy financial system, the central bank of Nigeria (CBN) has had to shoulder increasing responsibility in develop not only a sound monetary and financial system but also actively advancing the development objective of the federal government. Therefore, the central bank of Nigeria is a macro institution where activities affecting the nation economic life in the conduct of monetary management.
However, the commercial bank of Nigeria face same challenges in measure with the required standard of central bank which monetary, credit and fiscal policy. The problem of excess liquidity and excessive expansion of bank credit and inadequate financial infrastructure in the adoption of indirectly approach monetary control.

1.2 STATEMENT OF THE PROBLEM
Despite the achievement of the central bank of Nigeria (CBN) in the performance of its functions, there are still numerous problems are the asymmetry between monetary and fiscal policies. These problems have rendered them ineffective others are as follows.
The problem of excess liquidity and excessive expansion of bank credit.
Government fiscal operation over which government has no control.
Illegal trafficking in the Nigeria currency which was going on in some foreign countries
Inadequate financial infrastructure in the adoption of indirect monetary approach.
The Nigeria case is further aggravated by the inconsistency of the monetary policy as administered by the central bank of Nigeria.

1.3 OBJECTIVE OF THE STUDY
The objective of this study is to make a detail explanation of the effect of monetary policy as an instrument of liquidity of commercial banks in Nigeria. Monetary authority are charged with the responsibilities to administer monetary policies are normally concerned with the selection or some economic objectives, such economic objectives must be such that are in the general interest of the society

THE IMPACT OF MONETARY POLICY ON THE LIQUIDITY OF COMMERCIAL BANKS