1.1 BACKGROUND OF THE STUDY
There had been administrative control on the nation’s interest rates until July 31, 1987 when, in consonance with the spirit of the structural Adjustment programme (SAP) of the Federal Government the Central Bank of Nigeria issued a circular on interest rates bordering on the deregulation of this financial sector of the economy.
As a signal to the direction, the Central Bank wanted the interest rate to go, the minimum Re-discount Rate (MRR) was raised from 11 to 15% which now peaks at 18.5%.
The apex financial institution (CBN) declared that interest rates payable on deposits or chargeable on loans and advances were henceforth to be determined by the interplay of the market forces of demand and supply.
Nigerians being what they are agitative and speculative went to town some decrying the policy as the last straw that would break the back of our fragile economy, others extolled the policy as the best and boldest steps ever taken towards the revamping of the ailing economy. These divergent views of the financial experts both in the academic and in the Banking sector about the likely impact of the interest rate deregulation motivated me to appraise the impact of the deregulation on commercial banking operation.
Notable among those who bemoaned the deregulation of interest rate was Abiodum (1987). According to him, Deregulation a fragile economy like ours will have the overall effect of dampening it since the high interest rate will cause slow down investment as borrowing will be curtailed.
But this view was opposed by Iklude (1987) 2. he was of the view that “interest rate deregulation will not only bring relief to the financially repressed economy but will ensure a real return on deposit which has over the year been negative.
What these argument boiled down to was that interest rate deregulation would lead to efficient allocation of financial market resources because interest rate will now reflect relative scarcity and relative efficiency in different uses.
According to Abraham Nwankwo (1987) 3 “Bigger banks will price small ones out at the market by lending cheep to customers and paying them interest rate on their deposits”.
It is in the light of the controversies that accompanied the interest rate deregulation that prompted the deregulation on commercial Bank lending operation.
TABLE OF CONTENTS
TITLE PAGE II
APPROVAL PAGE III
DEDICATION IV
ACKNOWLEDGEMENT V
PROPOSAL VIII
LIST OF TABLES
TABLE OF CONTENTS IX
CHAPTER ONE
1.0 INTRODUCTION 1
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 3
1.3 OBJECTIVES OF THE STUDY 6
1.4 SIGNIFICANCE OF THE STUDY 7
1.5 SCOPE OF STUDY 8
1.6 LIMITATION OF THE STUDY 8
1.7 HYPOTHESIS 10
1.8 RESEARCH QUESTIONS 12
1.9 DEFINITION OF TERMS 12
NOTES. 15
CHAPTER TWO
2.0 REVIEW OF RELATED LITERATURE
2.1 FINANCIAL REPRESSION HYPOTHESIS 16
2.2 FINANCIAL REPRESSION IN NIGERIA 26
2.3 RELATIONSHIP BETWEEN INTEREST RATE AND SAVINGS 34
2.4 INTEREST RATE MANIPULATION BEFORE DEREGULATION 38
2.5 COMMERCIAL BANK AND FINANCIAL INTERMEDIATION. 40
2.6 PRINCIPLES OF GOOD LENDING 40
2.7 EFFECTIVE LENDING 44
2.8 THE IMPACT OF INTEREST RATE SPECULATION ON UNION BANK OF NIG. PLC .45
NOTES 47
CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 POPULATION OF COMMERCIAL BANKS 53
3.2 DETERMINATION OF SAMPLE SIZE 54
3.3 DETERMINATION OF CUSTOMERS SAMPLE SIZE 55
3.3.1 DETERMINATION OF BANK CUSTOMERS SIZE 60
CHAPTER FOUR
4.0 PRESENTATION AND ANALYSIS OF DATA 68
4.1 RATE OF RETURN OF QUESTIONNAIRES 68
4.2 ANALYSIS OF LOAN AND ADVANCES OF UNION BANK OF NIGERIA PLC ENUGU 69
4.3 TOTAL DEPOSIT LIABILITIES OF UNION BANK OF NIGERIA PLC ENUGU 70
4.5 ANALYSIS OF QUESTIONNAIRE TO CUSTOMER 79
CHAPTER FIVE
5.0 FINDINGS, RECOMMENDATION AND CONCLUSION
5.1 SUMMARY OF FINDINGS 94
5.2 RECOMMENDATION TO: 98
(i) CENTRAL BANK 99
(ii) COMMERCIAL BANK 99
(iii) CUSTOMERS 101
BIBLIOGRAPHY 102
APPENDIX
(I) COVERING LETTER TO THE QUESTIONNAIRE 106
(II) QUESTIONNAIRE
