THE IMPACT OF INTEREST RATE DEREGULATION ON COMMERCIAL BANKS’ LENDING OPERATIONS IN NIGERIA (A SURVEY OF UNION BANK OF NIGERIA PLC ENUGU

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CHAPTER ONE

• INTRODUCTION 1
  • BACKGROUND OF THE STUDY 1
  • STATEMENT OF THE PROBLEM 3
  • OBJECTIVES OF THE STUDY 6
  • SIGNIFICANCE OF THE STUDY 7
  • SCOPE OF STUDY 8
  • LIMITATION OF THE STUDY         8
  • HYPOTHESIS 10
  • RESEARCH QUESTIONS 12
  • DEFINITION OF TERMS 12

NOTES.                                                             15

 

CHAPTER TWO

• REVIEW OF RELATED LITERATURE
  • FINANCIAL REPRESSION HYPOTHESIS 16
  • FINANCIAL REPRESSION IN NIGERIA 26
  • RELATIONSHIP BETWEEN INTEREST RATE AND SAVINGS 34
  • INTEREST RATE MANIPULATION BEFORE DEREGULATION 38
  • COMMERCIAL BANK AND FINANCIAL INTERMEDIATION. 40
  • PRINCIPLES OF GOOD LENDING 40
  • EFFECTIVE LENDING           44
  • THE IMPACT OF INTEREST RATE SPECULATION ON UNION BANK OF NIG. PLC                               .45

NOTES                                                                        47

 

CHAPTER THREE

• RESEARCH DESIGN AND METHODOLOGY
  • POPULATION OF COMMERCIAL BANKS 53
  • DETERMINATION OF SAMPLE SIZE 54
  • DETERMINATION OF CUSTOMERS SAMPLE SIZE                     55
    • DETERMINATION OF BANK CUSTOMERS SIZE 60

CHAPTER FOUR

• 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

• FINDINGS, RECOMMENDATION AND CONCLUSION
  • SUMMARY OF FINDINGS 94
  • RECOMMENDATION TO: 98
• CENTRAL BANK 99
• COMMERCIAL BANK 99
• CUSTOMERS 101

 

BIBLIOGRAPHY                                          102

APPENDIX

• COVERING LETTER TO THE QUESTIONNAIRE                                                             106
• QUESTIONNAIRE

 

 

LIST OF TABLES

1. RATE OF RETURN OF QUESTIONNAIRES
2. ANALYSIS OF LOAN AND ADVANCES OF UNION BANKING OF NIGERIA PLC ENUGU
3. TOTAL DEPOSIT LIABILITIES OF UNION BANK OF NIGERIA PLC ENUGU
4. SCHEDULE OF AFTER TAX PROFIT OF UNION BANK OF NIGERIA PLC ENUGU
5. CLASSIFICATION OF ACCOUNTS HELD BY CUSTOMERS IN UNION OF NIGERIA PLC ENUGU
6. HYPOTHESIS I TESTING TABLE
7. HYPOTHESIS II TESTING TABLE

 

GRAPH

• TOTAL DEPOSIT LIABILITIES OF UNION BANK OF NIGERIA PLC ENUGU

CHAPTER ONE

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.

 

1.2     STATEMENT OF THE PROBLEMS

Interest Rate deregulation, like other stringent economy measured by the present administration has far reaching consequences on the nation’s banking industry and on the borrowing public.

Commercial banks that had lent huge sums of money before the deregulation of interest rate were in stormy water making their customers repay their loans at the new rate.  The borrowing public complained that their banks had without prior notice unleashed high interest rate on them.  They were at daggers drawn as the measure created had blood between the banks and their customers.

The interest rate deregulation with its attendant high interest payable on loan and advances terribly limited the borrower’s  quest for