1.1BACKGROUND 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
ACKNOWLEDGEMENTV
PROPOSAL VIII
LIST OF TABLES
TABLE OF CONTENTS IX
CHAPTER ONE
1.0INTRODUCTION 1
1.1BACKGROUND OF THE STUDY 1
1.2STATEMENT OF THE PROBLEM 3
1.3OBJECTIVES OF THE STUDY 6
1.4SIGNIFICANCE OF THE STUDY 7
1.5SCOPE OF STUDY8
1.6LIMITATION OF THE STUDY 8
1.7HYPOTHESIS 10
1.8RESEARCH QUESTIONS 12
1.9DEFINITION OF TERMS 12
NOTES. 15
CHAPTER TWO
2.0REVIEW OF RELATED LITERATURE
2.1FINANCIAL REPRESSION HYPOTHESIS 16
2.2FINANCIAL REPRESSION IN NIGERIA 26
2.3RELATIONSHIP BETWEEN INTEREST RATE AND SAVINGS 34
2.4INTEREST RATE MANIPULATION BEFORE DEREGULATION38
2.5COMMERCIAL BANK AND FINANCIAL INTERMEDIATION. 40
2.6PRINCIPLES OF GOOD LENDING 40
2.7EFFECTIVE LENDING 44
2.8THE IMPACT OF INTEREST RATE SPECULATION ON UNION BANK OF NIG. PLC.45
NOTES 47
CHAPTER THREE
3.0RESEARCH DESIGN AND METHODOLOGY
3.1POPULATION OF COMMERCIAL BANKS 53
3.2DETERMINATION OF SAMPLE SIZE 54
3.3DETERMINATION OF CUSTOMERS SAMPLE SIZE 55
3.3.1DETERMINATION OF BANK CUSTOMERS SIZE 60
CHAPTER FOUR
4.0PRESENTATION AND ANALYSIS OF DATA68
4.1RATE OF RETURN OF QUESTIONNAIRES 68
4.2ANALYSIS OF LOAN AND ADVANCES OF UNION BANK OF NIGERIA PLC ENUGU69
4.3TOTAL DEPOSIT LIABILITIES OF UNION BANK OF NIGERIA PLC ENUGU 70
4.5ANALYSIS OF QUESTIONNAIRE TO CUSTOMER 79
CHAPTER FIVE
5.0FINDINGS, RECOMMENDATION AND CONCLUSION
5.1SUMMARY OF FINDINGS94
5.2RECOMMENDATION TO: 98
(i)CENTRAL BANK 99
(ii)COMMERCIAL BANK 99
(iii)CUSTOMERS 101
BIBLIOGRAPHY 102
APPENDIX
(I)COVERING LETTER TO THE QUESTIONNAIRE106
(II)QUESTIONNAIRE