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
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.
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
TABLE OF CONTENT
of contents vii
1.1 Background of the study 1
the study 5
State of the
Scope of the
the study 7
Plan of the
review and theoretical framework 9
and savings structure in Nigeria
Era of administered
interest rate (Regulatory
The era of free
banking (laissezfaire 1894-1952) 14
The era of limited banking (1952-1958) 15
regulatory period (1958-1986) 15
associated with regulatory control 17
The nature and
characteristics of Deregulation
in Nigeria Banking system (1987 till date). 18
interest rates 22
of real interest rate
and it implication on the Nigeria economy 29
Theories of interest
theory of interest 41
The loanable fund theory of interest 45
The theory of
interest rate by the monetary school 48
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
sampling survey 62
conclusion and recommendation 76
5.1 Summary 76
1.1 BACKGROUND OF THE STUDY
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
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.
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.
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.
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.
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.
measure of deregulation in the banking sector covers areas such as:
new banks .
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.
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.
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.
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
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
OBJECTIVE OF THE STUDY
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.
the specific objective are as follows:
To examine the
relationship between interest rate deregulation and banking services.
To examine the
performance of the banking sector before the after deregulated period in Nigeria.
To examine the
comparison regulated and deregulated interest rate, the effect on commercial
STATEMENT OF THE PROBLEM
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.
banking sector failure during the laissez- fair banking practices through
capital inadequacy and staff, structural handicap and poor management in 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
SCOPE OF THE STUDY
scope of this study is limited to the commercial banking in Nigeria.
SIGNIFICANCE OF THE STUDY
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.
the analysis and examination of interest rate deregulation becomes a necessity.
PLAN OF THE STUDY
in all, this research work comprises of five chapters.
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.
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.
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.
finally, chapter five will be the summary, recommendation and the conclusion of
the project work.
That deregulated interest rate in Nigeria has significant effect on
That lending rate under deregulation has
significant impact on investment.