THE IMPACT OF MONETARY POLICY ON THE PROFITABILITY OF BANKS IN NIGERIA. A RESEARCH PROJECT MATERIAL ON BANKING AND FINANCE
CHAPTER ONE
INTRODUCTION
Banks are the most regulated of all business in Nigeria. This is because of the nature of banking itself and its centrality to the effective functioning of the economic system.
The importance and centrality of the banking system in the development of an economy is obvious and beyond dispute. It plays some roles which include financial intermediation provision of an efficient payment system and facilitating the implementation of monetary policy
On intermediation the banking system mobilizes savings form the surplus and channel them to investment in operating the payment mechanism the system serves as a medium for exchange and in execution of monetary policy, the system serves as agents through which the policies are disseminated
However without banks arrangement savings and investment will not only be inefficient but may lead to less than optimum resources allocation.
Accordingly an efficient and effective system is indispensable not only for the promotion of efficient intermediation but also for the protection of the depositors encouragement of a healthy competition and the stability of economy.
The degree of success of bank in performing the above functions however depends on the financial and regulatory environment which in itself is a function of the totality of the environment in which it operate.
1.1 BACKGROUND OF THE STUDY
In order to have a clear understanding of the subject matter ie. “ the impact of monetary policy on the profitability of commercial banks. It is important to highlight what monetary policy is all about.
The term monetary policy according to Dr. Ojih (1996) can be defined as the credit control measures adopted by central bank to control the supply of money as an instrument for achieving the objectives of general economic policy. It involves expansion and contraction of money supply the manipulation of interest rates to make borrowing easier or more difficult depending on the pervading condition of economy expansionary measure is adopted when the central bank wants to increase money supply. On the other hand concretionary measure is adopted when the central bank wants to reduce money supply.
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