Topics: Monetary policy, Central bank, Reserve requirement Pages: 10 (3034 words) Published: May 1, 2013
African Journal of Business Management Vol. 6(51), pp. 12038-12042, 26 December, 2012 Available online at DOI: 10.5897/AJBM11.1843 ISSN 1993-8233 ©2012 Academic Journals

Full Length Research Paper

Analysis of monetary policy on commercial banks in Nigeria

Akanbi T. A.* and Ajagbe F. A.
Department of Management and Accounting, Ladoke Akintola University of Technology, Ogbomosho, Oyo State, Nigeria. Accepted 9 October, 2012

This study investigates analysis of monetary policy on commercial banks in Nigeria. The study employed three commercial banks in the Nigeria financial system, that is, the first generation banks. The employed data run through 1992 to 1999 and this was collected through various issues of central bank of Nigeria statistical bulletin and analysed with the use of regression model. The results showed net profit, liquidity ratio, cash ratio and interest rate on savings which confirms to the prior expectation. This could be further explained with the regression estimate whereby an increase in interest rate will leads to a decrease in the lending rate while liquidity ratio and cash ratio were statistically significant to the profit of the selected banks. Key words: Monetary policy, commercial bank, Central Bank of Nigeria (CBN), Nigeria.

INTRODUCTION Monetary Policy is an instrument given to the Central Bank of Nigeria (CBN) by the federal government that is, it is a function which is a documentary policy to control the aggregate demanded in the circulation or cost. The policy is to see to the stability in wages and prices of goods and services. It is also necessary to control the volume of money in circulation and to give the domestic money a value via other controls. In the monetary policy, there are many tools used in the Central Bank of Nigeria (CBN) to achieve the over all objective. Fiscal policy is used in order to compliment the effect of monetary policy of the Central Bank of Nigeria (CBN). If the monetary policy have been effectively used, there will be low inflationary trend in the economy, there by increasing or enhance the purchasing power of the citizens. In order to effectively used the Money Policy, the government or the Central Bank of Nigeria (CBN) must be pro-active in respect of the financial sector and its important or relevance as the pivotal to the economic development. However, the monetary policy in Nigeria have been always ineffective due to some factors such as, irregularity over loan, oligopolistic structures of the banks, dual markets, poverty and low valuation of financial assets in the market. Monetary policy aims at controlling the activities of banks and other financial sectors in the economy, but in spite of the key position this control occupies in the economy, care had not been taken to really exploit the trend of events in the economy so as to come up with the appropriate regulation and deregulation policy. If this is done, positive indicators will begin to appear in the economy. For now, there is instability in the economy and the inflationary rate is very high. Economists have been interested in the effect of fiscal and monetary policies in the economy. Recent studies have analysed the impact of market structure on profitability in the banking industry. In general, some of these studies have concluded that market structure does not significantly influence profitability. In contrast, most studies of pricing policy have found that 'the prices of bank services increase with the

*Correspondence author.

Akanbi and Ajagbe


degree of monopoly in the banking sector. In view of this, it is therefore pertinent to evaluate the impact of monetary policy on commercial banks. Ajayi (1978) emphasized that the instrument of monetary policy will vary depending on the economy in question. The criteria for choosing any instrument cannot be stated in any ambiguous terms. Schwartz (1969) said that...

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