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ASSESSMENT OF MONETARY POLICY ON THE PROFITABILITY OF COMMERCIAL BANK

CHAPTER ONE

1.1     INTRODUCTION

The government monetary policy, which talks about the combination of measures, designed to regulate the value supply and cost of money in an economy can serve as an essential tool to increase the profitability making of a bank or otherwise. These measures when carried out effectively and wisely could yield positive result for financial institutions. These tools that are used cannot be ignored be caused they exert great influence on the banking system. While it is established that factor influences the profitability of banks. However the regulatory framework under which bank operates is perhaps the most direct. This frame work can be broadly divided into two aspects: qualitative and quantitative techniques monetary policies are normally rooted through banking institution because of the crucial role these institution play in the intermediary process.

The banking industrial plays a vital role in the development of the economy of any nation.  Be that as it may among the industrial sectors in the country today one can say that the banking sector arouses the most visible and fastest growing sector in the Nigeria economy.

Bank role in aiding the acceleration and expansion of the economic development of any nation particularly in serving, as an engendering in developing countries cannot be over emphasized.

Articulating on the importance of its role (Fabanmi JO 1989) States “institutions which affects the body politic of a nation must be subjected to adequate and rational regulation and supervision otherwise a collapse of the entire system will be noticed due to unmanaged unattended and over regulated colossus”

The banking sector has become one of the critical sector and commanding heights of the economy use to effective participation in the direct of economic growth and transformation and such sensitive issues as the of unemployment inflation price stability or any other macroeconomic goal which directly affects the lives of our people. Gardner (1984p53) pointed out clearly that:

In virtually all developed market economy the banking industry is more heavily regulated than other commercial and industrial sectors” banking is regulated from cradle to grave he conduced.

The pressure for banking regulations and policies grew as people realized that the failure of a bank could mean the loss of a personal future or of a firms working capital. According to Nwankwo G.O (1990) “A run on one bank often generates uncertainly and panic among depositor of other banks in the community and the spill over of failure could in turn be transmitted to more remote part of the country. It therefore becomes situationally expedient that banks should be controlled because of the key role they plays with customers in saving and deposit investment process.  Banks are regulated because their liabilities are “money” the quantity of which national authorities seek to control to achieve monetary stability.

The maximization of profit is the sole aim of those that invest in the banking business since banks are commercial business firms. Recently banks profit are increasing as a result of the more attention given to it by bank management supervisory authorities as well as stockholder with the resultant effect that the number of banks have multiplied in recent times.  Top executives of banks in Nigeria are more concerned about profitability especially now that profit are no longer looking after themselves as they did in the 1970’s when the mobilization of crude oil exports created favorable economic conditions which benefited the Nigerian banking system very much.

1.2     HISTORICAL BACKGROUND OF THE CASE STUDY

Union Bank of Nigeria’s rich history can be traced to 1917 when it was first established as Colonial Bank. In 1925 the bank became known as Barclays Bank DCO (Dominion, Colonial and Overseas) resulting from its acquisition by Barclays Bank. Following Nigeria’s independence and the enactment of the Companies Act of 1968, the bank was incorporated as Barclays Bank of Nigeria Limited (BBNL, est. 1969).

Between 1971 and 1979, the bank went through a series of changes including its listing on the NSE and share acquisitions/transfers driven by the Nigerian Enterprises Promotion Acts (1972 and 1977); this resulted in its evolution into a new wholly Nigerian-owned entity. To reflect the new ownership structure, and in compliance with the Companies and Allied Matters Act of 1990, it assumed the name Union Bank of Nigeria Plc. (UBN “the Bank” or “Union Bank”).

In 1993, in line with its privatisation/commercialisation drive, the Federal Government divested by selling its controlling shares (51.67%) to private investors. Thus, Union Bank became fully owned by Nigerian citizens and organizations all within the private sector. During the Central Bank of Nigeria’s (CBN) banking sector consolidation policy, Union Bank of Nigeria Plc acquired the former Universal Trust Bank Plc and Broad Bank Ltd. and absorbed its one-time subsidiary, Union Merchant Bank Ltd.

Following the banking crisis in 2009 and the intervention of the CBN via Asset Management Company of Nigeria (AMCON), the bank was recapitalized in 2012 with an injection of $500 million by Union Global Partners Limited (UGPL), a consortium of local and international investors. UGPL acquired 65% of the bank’s shareholding and in the last quarter of 2014, AMCON’s remaining 20% stake in the bank was acquired by Atlas Mara.

Since the early 1990s the bank has enjoyed a period of unparalleled growth, acquiring Universal Trust Bank plc. Broad Bank Limited and Union Merchant Bank as well as increasing shareholder funds through a rights issue in 2005.

The Union Bank of Nigeria now has a network of over 400 branches across Nigeria, a subsidiary in London and offices in Ghana, Benin and South Africa. In 2009 it posted gross earnings of US$980million and total assets of US$8.8billion.

1.3     STATEMENT OF THE PROBLEM

Commercial bank had consistently complained that the implementation of monetary policy instrument such as cash reserve ratio, liquidity ratio, sector of credit allocation stabilization securities etc. had over the year locked most of the deposit and force them to invest their asset in law geldings and risky venture had left devastating effect on their profitability. Are these claims by commercial banks true or are they just crying the wolf.

This work would seek to find out form-satisfied analysis the impact, which the monetary policies have on the following:

1. The effect of the monetary policy whether it enhances or retained bank growth.
2. The development and growth of banking industry in Nigeria.
3. Whether the depositors had confidence on banking operation. 

1.4     OBJECTIVE OF THE STUDY

The broad objective of this study is to find out whether the various monetary policy instrument have on the profitability of commercial banks depend on the effectiveness of the instrument employed by the central bank hence the objective of the study whether the various monetary policy instrument exert any negative or positive influence on the profitability of commercial banks. Other specific objectives are:

1. To find out how the various tools of monetary policy are employed
2. To understand how monetary policy affect the profit making of commercial bank.

1.5     RESEARCH QUESTION

The question in this study follows:

1. What is the primary goal of union bank of Nigeria?

2. What is the use of monetary policy?

3. Did the various instrument used by central bank, affect the profitability of commercial bank?

1.6     STATEMENT OF HYPOTHESIS

The following hypotheses are tasted in other to analyze the problem identified they are as follows:

1. H_o: No relationship exists between monetary policy and banks growth.

H_i: Relationship exists between monetary policy and banks growth.

• H_o:    No relationship exists between monetary policy and profitability.

H_o:    Relationship exists between monetary policy and profitability.

1.7     SCOPE OF THE STUDY

The study focused on the assessment of monetary policy on the profitability of commercial. Bank between, 200 and 2002 the choice of 2000 and 2002 well-conceived the, research intended to find out the effect of monetary policy instrument used from 2000 on the performance of commercial bank (with particularly reference to profitability). This study also focused only on Union Bank of Nigeria Plc Abuja branch.

1.8     LIMITATION OF THE STUDY

The study is limited only on the regulation of monetary policy in the profitability of commercial bank in Nigeria. This researcher work is as follow.

1. The researcher suffered distress and anticipation doubting the possibility whether the date will be collected at all.
2. The financial handicapped of the researcher his transportation cost, material cost and other associated with the research affected the work partially.
3. In spite of the fact that the polytechnic does not have enough materials needed for the elaborate literature review adequate use were made of the available materials from the information on previous study on the subject under research these have on effect on the work.

1.9     SIGNIFICANCE OF THE STUDY

The Nigeria banking sub-sector today is the survival of the fittest while the management of commercial bank work round the clock to earn profit to account for their steward ship to achieve its set objective. Hence the choice of the topic assessment of the monetary policy on the profitability of commercial bank of Nigeria is timely.

This study and its subsequent recommendation will provide a quite not only to the management of union bank Plc. but also other commercial bank in their responds to monetary policy enforced from time by central of Nigeria.

This study will also act as a retrenched material for other scholars who intend to conduct study in future.

1.10   DEFINITION OF TERMS

Profitability: This refers to the rate of return on equity of a bank.

Returns: This is the yield on investment which is usually expressed as yield per naira investment

Equity: This includes the normal value of ordinary share of a bank and all the resource standing in the bankbook.

Liquidity: This is solvency in term of demand on deposit.

Asset: This is the net value of all properties belonging to the bank.

Banking: This is the receipt of money on current or deposit account and the payment of cheque paid in by customer.

Environment: these are factor such as economic management regulatory framework, which affect the activities of commercial bank.

Tools: These are means by which the central bank enforces the monetary policy.

REFERENCE

Abdullahi Y.I (1994) Effect of Government Deregulation Polices on Banks Business Times Monday Augusts 5^th Page 5.11 

Agbelsi T.O (2000) Banks and the Society in the AD Paper Presented at the Nigeria Institution of Banks 19^th Annual Banking Seminar at Enugu August 31 Page 1-24

Agu G.C (1981) Management and Management of Banks Project and Profitability Nigeria Management Review of June Page 33

Central Bank of Nigeria (1991) Presidential Guidelines for Licensed Banks in Nigeria C.B.N

Fanumi J O and Eremi A.O (1989) Government Regulation and Control of  Bank Nigeria Business Law and Practice Journal Vol. 2 No  September Page 47 Walter W. Haines (19961) Monetary Pric and Policy Published by Mearali Hill Book Company

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