ABSTRACT
For the
purpose of clarity, the work will be divided into five (5) chapters and each of
the chapters will look at a relevant segments of the study as follows, chapter
on gives a general introduction, the aim of engaging in the study, definition
of the study, key terms and research questions. This chapter is therefore an overview
of the whole work. The second chapter contains the literature review that is
the works of various authors in the field of impact of rising interest rate on
manufacturing was examined. Chapter three will take a look at research
methodology, sources of data collection, population and sample size, population
and sampling techniques instruments for data collection as well as technique
for data analysis. Chapter four contains data presentation, data analysis interpretation
and summary of findings. Finally the last chapter will be the conclusion of what
has been derived from the study and recommendation made; there is need for manufacturing firm to have the basic intellectual
and management capacity that will help bring about efficiency in production and
resource utilization and the CBN should device a better method of monitoring
the activities of banks to ensure policy compliance, good corporate governance
and social responsibility.
TABLE OF CONTENT
Title page - - - - - - - - - - i
Declaration - - - - - - - - - - ii
Approval page - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgment - - - - - - - - - v
Abstract - - - - - - - - - - vi
Table of contents - - - - - - - - - vii
CHAPTER ONE
1.1 Background of the study - - - - - - - 1
1.2 Statement of Problems - - - - - - -
1.3 Objectives of the study - - - - - - -
1.4 Research Question 0- - - - - - - -
1.5 Significance of the study - - - - - - -
1.6 Scope and limitation of the study - - - - -
1.7 Definition of terms - - - - - - - -
CHAPTER TWO
2.1 Definition - - - - - - - - -
2.2 Historical Development of Interest Rate - - - -
2.3 Concept of Manufacturing Sector - - - - -
2.4 Nigerian Economy - - - - - - - -
2.5 Policies of Interest Rate - - - - - - -
CHAPTER THREE
3.0 Introduction - - - - - - - -
3.1 Research Design - - - - - - - -
3.2 Area of Study - - - - - - - -
3.3 Population of Study - - - - - - -
3.4 Sampling Technique - - - - - - -
3.5 Data Collection and Instrument - - - - - -
3.6 Validity and Reliability of Instrument - - - - -
3.7 Administration of the Instrument - - - - -
3.8 Method of Data Analysis - - - - - - -
CHAPTER FOUR
4.0 Introduction - - - - - - - - -
4.1 Data Presentation - - - - - - - -
4.2 Data Analysis - - - - - - - -
CHAPTER FIVE
5.0 Introduction - - - - - - - - -
5.1 Summary - - - - - - - - -
5.2 Conclusion - - - - - - - - -
5.3 Recommendation - - - - - - - -
Reference
Appendices
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Central Bank of Nigeriais responsible for implementing monetary
policy, regulating and supervising banks, and operating the payments system. With
these responsibilities come the authority to raise and lower national interest
rates in the banking industry. Interest rate movements help balance inflation
and keep the economy stable. When the economy slows and inflation is high, the
CBN raises interest rates to change consumer behavior
Interest has been variously defined both by
conventional economists and Islamic economists. In conventional economic
interest rate refers to that surplus income that is positive which a lender
receives from the borrower over and above, the principal amount, as a reward
for waiting or parting with the liquid part of his capital for a specified
period of time.
Given the prominent role of the banking sector in the euro area’s
financial system, it is of significantimportance for the ECB to monitor the
degree of competitive behaviour in the euro area bankingmarket. A more
competitive banking market is expected to drive down bank loan rates, adding to
thewelfare of households and enterprises. Further, in a more competitive
market, changes in the ECB’smain policy rates supposedly will be more
effectively passed through to bank interest rates.
This study extends the existing empirical evidence, which suggests
that the degree of bank competitionmay have a significant effect on both the
level of bank rates and on the pass-through of market rates tobank interest
rates. Understanding this pass-through mechanism is crucial for central banks.
However,most studies that analyse the relationship between competition and
banks’ pricing behaviour apply aconcentration index such as the
Herfindahl-Hirschman index (HHI) as a measure of competition. Wequestion the
suitability of such indices as measures to capture competition. Where the
traditionalinterpretation is that concentration erodes competition,
concentration and competition may insteadincrease simultaneously when
competition forces consolidation. For example, in a market whereinefficient
firms are taken over by efficient companies, competition may strengthen, while
themarket’s concentration increases at the same time. In addition, the HHI
suffers from a seriousweakness in that it does not distinguish between small
and large countries. In small countries, theconcentration ratio is likely to be
higher, precisely because the economy is small.
The main contribution of this paper is that it applies a new
measure for competition, called the Booneindicator (see also Boone, 2001;
Bikker and Van Leuvensteijn, 2008; Van Leuvensteijn et al., 2007).The basic
notion underlying this indicator is that in a competitive market, more
efficient companies arelikely to gain market share. Hence, the stronger the
impact of efficiency on market shares is, thestronger is competition. Further,
by analyzing how this efficiency-market share relationship changesover time,
this approach provides a measure which can be employed to assess how changes
incompetition affect the cost of borrowing for both households and enterprises,
and how it affects thepass-through of policy rates into loan and deposit
rates.Our study contributes also to the pass-through literature in the sense
that it applies a newly-constructeddata set on bank interest rates for eight
euro area countries covering the January 1994 to March 2006period.
This paper uses interest rate data that cover a longer period and
that are based on more harmonized principles than those used by previous
pass-through studies for the euro area. We find that strongercompetition
implies significantly lower interest rate spreads for most loan market
products, as weexpected. Using an error correction model (ECM) approach to
measure the effect of competition on thepass-through of market rates to bank
interest rates, we likewise find that banks tend to price their loansmore in
accordance with the market in countries where competitive pressures are
stronger.
Furthermore, where loan market competition is stronger, we observe
larger spreads between bank andmarket interest rates (that is, lower bank
interest rates) on current account and time deposits. Lowertime deposit rates
in countries with stronger bank competition are confirmed by the ECM
estimates.Apparently, the competitive pressure is heavier in the loan market
than in the deposit markets, so thatbanks under competition compensate for
their reduction in loan market income by lowering theirdeposit rates.
Furthermore, in more competitive markets, bank interest rates appear to respond
morestrongly and sometime more rapidly to changes in market interest rates.
1.2 STATEMENT OF PROBLEM
The fundamental problem of any government vogue is its economic or
otherwise its implementation. a number of government monetary policy instruments
have been designed and applied in Nigeria in the hope of achieving the desired
result of stable price level, low level of unemployment, efficient banking
system etc. but the applications of direct monetary instruments have not bring
forth the desired objectives stated above hence, left the government without
any other alternative than to turn to the direct monetary instrument.
Therefore, the problem under study is the impact of rising interest rate on
manufacturing sector. One of the principal function of the central bank of Nigeria
(CBN) is to formulate and execute monetary policy to promote stability and
soundfinancial system in Nigeria.Monetary policy was adopted when strategy
shifted to demand management containing inflation preseure, balance of payment,
imbalance and high deflect in the federal budget and the effect on the growth
in money supply. Consistent with the monetary targeting problems of the Central
Bank of Nigeria (CBN) focuses on liquidity management to achieve the objective
by maintaining price and macro economic stability.Despite all these efforts
that put are in place by Central Bank of Nigeria, the problem of monetary
management have persisted and the main constraints continue to be the
ineffective control and the uncertainty created by fiscal operation.
1.3 OBJECTIVE OF THE STUDY
Ø To identify if loan interest rates are lower, and deposit interest
rates higher, in more competitive loan markets than in less competitive loan
markets
Ø To assess long-run loan and deposit interest rate responses to
corresponding market rates are stronger in more competitive loan markets than in
less competitive loan markets
Ø To identify bank interest rates in more competitive markets adjust
faster to changes in market interest rates than in less competitive markets
1.4
RESEARCH QUESTION
i.
How does interest rates are
lower, and deposit interest rates higher, in more competitive loan markets than
in less competitive loan markets?
ii.
How does long-run loan and
deposit interest rate responses to corresponding market rates are stronger in
more competitive loan markets than in less competitive loan markets?
iii. Is
bank interest rates in more competitive markets adjust faster to changes in
market interest rates than in less competitive markets?
1.5 SIGNIFICANCE OF THE
STUDY
However, the research study will assist the
economic to derive possible solution to the problem e.g. inflation using
policies measures as adopted by the monetary authorities. Further, the
research, x-rays that types of monetary policy measure which can be use to
combat the problem of unstable economic and as a result will be a kind of it
may be concerning of their field of study.
Government will benefit immensely on the
research work as the research have put it down.
1.6 SCOPE
OF THE STUDY
This project covers the impact
of rising interest rate on manufacturing. A general overview of monetary policy and inflation in the Nigerian
economy is the foundation upon which the project is developed.
1.7 LIMITATION OF THE STUDY
However, study of this nature is known to be
subject to a number of problems or constrains, which are peculiar to the
Nigerian society such as financial constraints.
This research work was not an exception the
problem of visiting the Central Bank of Nigerian and some other places for data
collection involved spending a lot of money or transport expenses.
Hence, the predicament of the overage students can therefore be
imagined.
Furthermore, the issue of office protocols
time limit, secrecy inadequate research materials also were some setbacks to
the researchers in carrying out this research.
1.8 DEFINITION OF TERMS
The author considers it necessary to define the
following terms as applied within the context of this project.
Asset
portfolio: Arrangement of bank assets
on order of its
liquidity and
profitability.
Advances: These are
monies lent by a bank generally in
the form of an overdraft on a current account and also
by means of a loan or personal loan.
Affidavit
form: This is a written statement used as a legal
proof.
Bank
credit: Credit created by a bank
increasing the size of
the account of a depositor e.g. when making an
advance.
Branch
banking: the typical commercial
bank in most
countries is a very large institution with a large
number of branches.
C.O.T: Commission
on turn over or cost of
transaction, this is normally charged on the total
of debt turn over of current account.
C.O.F.O: Certificate
of occupancy
Cash
ratio: This is the ratio of cash to demand deposit
usually
calculated on percentage.
Clean
lending: Loan and advance granted
without any
security.
Collateral
security: properties perhaps in the
firming deeds to
a house or stock and shares deposited with a
creditors to guarantee that a loan will be repaid.
Demand
deposit: this is the total amount
of money deposited
with the bank.
Deed
of release: this is the document
usually signed by
customers when any property held by bank is
returned.
Equitable
mortgage: Property pledged to the
bank as security
without legal
backing.
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