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IMPACT ON PROFITABILITY OF COMMERCIAL BANK IN NIGERIA OF INTEREST RATE DEREGULATION A CASE STUDY OF UNION BANK OF NIGERIA

                                          ABSTRACT

        This researcher work is a survey of an analysis of the effect of interest rate deregulation on the profitability of commercial banks. The research to work tried to find out among other objectives, the impact of deregulation of  interest rate policy on the profitability of commercial bank. In carrying out the research, the regression and correlation method were use to analyze statistically to tools. The result obtained indicated from the hypothesis tested that the null hypothesis was rejected.

        However, it was discovered from the findings of the research that deregulation has contributed relatively in the development of the economy thus.  

        It has engendered competition among bank and other institutions for deposits as well s some non  - traditional activities. Saving mobilization has also been encouraged by demand and supply which determined inter4est rate.

        It has also induced the bank to source for idle funds, which are sent to deficit area to encourage loans and advances .

        Sanity has been encouraged in some banks as they are now beat on judicious use of  their available funds and hence allocated it  to the most profitable ventures. 

        The study also reveal that there was also increased in the economy by deregulating interest rate, it become incumbent on the side of the researcher to make the following recommendation. That the changes in the rediscount rate at any given period should be  between the range of 15% and 25% depending on the monetary policy pursued or intended to be pursued.

        That written the framework of the current market economy in relation to interest rate, there should  be a sufficient institutional control or regulatory legislation to ensure that the very vital sector of the economy that ordinarily would not survive the economic regime of deregulation are adequately created for.

TABLE FO CONTENTS

Title page                                                          II

Approval page                                                    III

Dedication                                                         IV

Acknowledgement                                              V

Abstract                                                             VII

CHAPTER ONE

1. Introduction                                               1

1.1    Background of the study                             7

1. Statement of the problem                            9
2. Objective of the study                                         10
3. Researcher Questions                                 11
4. Formulation of hypothesis                            12
5. Significance of the study                             13
6. Scope and Limitation of the  study                14
7. Definition of terms                                      16

CHAPTER  TWO

REVIEW OF  RELATED LITERATURE 

1. Definition of Interest rates                           19
2. Structure of interest rates                            22
3. Different Approaches to interest rate determination 31
4. Relationship Between profit and interest rate 35
5. Reasons and method of regulation                38
6. Effects of Regulations on Banks                    45
7. Concept of deregulation                               50
8. Reasons for Deregulation                             52
9.   Implications of deregulation case Against Deregulation 54

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

1. Research Design                                                64
2. Sources of Date                                          65
3. Primary Source of Date                                        65
4. Secondary Sources of Date                           67
5. Location of Date                                          68
6. Area of Study                                              68
7. Population                                                  69
8. Sample size determination and Sampling Technique69
9. Instruments of Data Collection                       71
10. Data Collection                                            72
11. Data Treatment                                           72

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

1. Test of Hypothesis                                      75

CHAPTER FIVE

SUMMARY , RECOMMENDATION AND CONCLUSION

1. Summary of Findings                                     105
2. Recommendations                                                 107
3. Conclusion                                                    108

Bibliography                                                       114

Appendices                                                       

Application to Respondents sample of Questionnaire       117

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

        Before, 1987, the interest rate management policy was one of the control function by the Central Bank o Nigeria (CBN) which fixed the minimum saving rates and maximum lending rates for financial institutions. This was the are of administering interest rate regime. Following he introduction of a market based interest rate policy in 1987 by the Central Bank of Nigeria (CBN) bank were allowed to according market conditions through negotiations with been customers. Ever since then, there has been significant impact of such deregulation policy on the Nigerian economy especially on the profitability of commercial banks.  

        In directing bank to pay interest on current account deposits by the Central Bank of Nigeria (CBN) is in the context o the deregulation framework. This is implied by the negotiation between the banks and their customers on the interest rate payable on deposits for special purpose held for more than seven days. To further ensure that customers are not exploited, the Central Bank of Nigeria (CBN) has further directed that the reducing balance method should be applied in calculating charges on loans, payable in agreed installments.

Following the introduction of a market based interest rate policy in 1987 by the Central Bank of Nigeria (CBN) banks were allowed to determine their deposit and landing rates according to market conditions through negotiation with their customers. However, the minimum rediscount rate (MRR) continued to be fixed by the Central Bank in line with changes in overall economic conditions. For instance, the MRR which was fixed at 15 percent in August 1987 was reduced to 12.75 percent in December 1987 with the objective of stimulating investment and in the economy following the need to moderate monetary policy. In 1989, the MRR was raised to 13.25 percent in furtherance of the flexible interest rate policy; the CBN introduced securities (Treasury bills and ce

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