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The findings could be interpreted within the context of the loanable funds theory to suggest that the
demand for loans exceed the supply of same allowing banks to charge higher interest on lending
relative to deposits to increase profitability. Remember that your decision to trade or invest should
depend on your risk tolerance, expertise in the market, portfolio size, and goals. This therefore
requires that banks must engage in an effective financial intermediation process to aid the
transformation of the real sector as an engine of growth. Non-interest income to average total assets
(NIYAVTASS) has a non significant positive effect on interest rate spreads. It sought to assess the
significance of interest rate, and to suggest measures that could enhance economic growth in Nigeria.
The result shows that a 1 percent rise in LDEPRAT would increase IRS by 0.53 percent. The av erage
loan to average total assets (LNASS) coefficient is positive but not signifi- cant 7. The researcher
used Ex-post facto research design which was influenced by the nature of the data used. However,
spreads maintained double digit value through the period 1997 and 2007 at- taining a peak of 24.62
in 2002. On the average over the 0 5 10 15 2 0 86 88 90 92 94 96 98 00020406 Figure 1. The result
of the findings revealed that: there existed an inverse relationship between interest rate and
economic growth in Nigeria, meaning that increase in interest rate will decrease GDP of the country,
thus retarding growth of the real sector. The bottom line Forecasting inflation rates and interest rates
is a challenging task due to the unknowns of the future. Real investment adds to the stock of goods
in existence (Jhingan, 2008). Specifically, the study used Levin, Lin and Chu; Im, Pesaran and Shin
W-stat, AD F-Fisher Chi-square and PP-Fisher Chi-square tests. From the VAR-based impulse
response function and its corresponding variance decomposition estimates, result shows the
existence of negative relationship between interest rate and economic growth in Nigeria. Inflation
rate, GDP, financial deepening, cash reserve requirement, risk premium, Treasure bill rate, loan asset
quality, liquidity risk and non interest expenses were the most important factors that affected
commercial banks’ interest rate spreads during the period. The study made use of Secondary Data
sourced from the Central Bank of Nigeria Statistical Bulletin and between 1981 and 2015. The study
was anchored on Modern theory of interest rate. Monetary Policy, Exchange Rate and Inflation Rate
in Nigeria. This write up therefore intends to examine both the Lending Interest Rate and Deposit
Interest Rate and the effects of its fluctuation on the Nigerian Economic Development. The IMF
also expected inflation in Nigeria to remain at elevated levels. The ratios of average capital employed
to average total assets, non interest expenses to average total assets, and remu- neration to total
assets have negative effects on interest rate spreads as against positive effects obtained under pooled
OLS and fixed effects models. The CBN conducts a two-day monetary policy meeting six times a
year held every alternate month. Two research hypotheses were formulated to investigate the
relationship between interest rate and economic growth and the difference in economic growth
before and after interest rate deregulation regime in Nigeria. Testing for the properties of time-series,
ADF test indicates that all the variables are integrated of same order I(1). The study recommend that
government through the central bank of Nigeria (CBN) should formulate suitable policies that will
enhance the flow of investable funds (credit, loans and advances) between the financial sector and
the productive private sector of the economy where goods and services are produce at low interest
rate. The result also showed that exchange rate has a negative and insignificant impact on investment
in Nigeria while inflation has a positive and insignificant impact on investment in Nigeria while
money supply has a positive and significant impact on investment in Nigeria. Data collected were
analyzed and tested using the ordinary least square multiple regression analytical technique. To
browse Academia.edu and the wider internet faster and more securely, please take a few seconds to
upgrade your browser. Moreover at the short-run interest rate spread also negatively but
insignificantly affect bank performance in Nigeria. There is need to elimination barriers to effective
transmission of monetary, expansionary monetary policy should be formulated that will reduce
interest rate, encourage borrowings and savings. Annual time series data were obtained from the
Central Bank of Nigeria Statistical for the period 1981 to 2019 on the variables used for the study.
These banks accept deposit from the surplus units and make them available to the investors who
have economic proposals but are impecunious to execute them. For the other cases, the coeffi- cients
were not statistically significant. The size of savings (deposits), majorly determines the size of
investments. However, many of the banks became distressed, principally because regulatory capacity
building could not keep up with the expansion in banks. To achieve the objective of the research,
some macroeconomic indicators in the Nigerian economy, using an ex-post facto research design
were applied. Keyne's definition of interest rate focuses more on the lending rate of interest and this
is the area where most researchers are focusing. We do not make any representations or warranty on
the accuracy or completeness of the information that is provided on this page. From the examination,
it was uncovered that there was a huge connection between financing cost and GDP in Nigeria.
Empirical analysis of the relationship between stock market returns and macro. It dropped to 6.51 in
1991 when embargo was placed on bank licensing. Domestic real investment was modeled as the
function of percentage of credit to private sector to gross domestic product, naira exchange rate per
US dollar, maximum lending rate, monetary policy rate, prime lending rate, net domestic credit,
savings rate and Treasury bill rate. Examining the Relationship between Term Structure of Interest
Rates and Econo. The data were analyzed using the Ordinary Least Square (OLS) method. However,
in developing countries, Nigeria inclu- sive, not very many studies have been conducted on the
subject matter. Additionally, aggregate economic output should be seen as the bane of government
policy thrust, through bringing down of rate charged to lending and expanding rate to savings, as
this improves financial development. The controlled variables were the liquid liabilities (M 2), the
Federal Government capital expenditure and interest rate. Based on these findings, it was
recommended that the government through the monetary authority should come up with monetary
policies that will affect interest rate in such a way that investment will be stimulated. It therefore
follows that monetary policy shocks have been a. Download Free PDF View PDF Microfinance
Banks Investments and Poverty Alleviation in Nigeria Professor I. G. OKAFOR Investment has
been associated with economic development. This is because a central government can levy taxes in
her currency and even print money to repay her loans. This means that savers will lose purchasing
power at about 10% per annum for the third consecutive year. The study measured interest rate
spread using net interest income (IntSp) and net interest margin (NIM) and bank profitability using
Return on Assets (ROA) and Return on Equity (ROE). There are, however, alternative ways of
measuring IRS in the literature, such as the difference between interest income received and interest
paid by a bank as a ratio of total assets or difference between the ratio of interest received and all
interest bearing assets and the ratio of interest paid and all interest earning liabilities. The Effect of
Inflation, Interest Rates and Exchange Rates on Stock Prices C. The study observed that the effort of
monetary policy at. This is why the rate at which a central government borrows her currency is
referred to as a risk-free rate. 2. Let us assume a scenario where in a particular year, the Federal
Government of Nigeria (FGN) wants to spend NGN 2 trillion more than she would earn, does not
have savings to cover this deficit and therefore needs to borrow. These investments could be on plant
and machinery, roads and railways, schools and hospitals, numerous infrastructure and human
beings. If this situation continues, the defined contribution system of pensions will be at grave risk.
Accordingly, the study recommends a regime of attractive interest rate on savings accumulation of
large amount of savings for investment. There is also need to revisit some of the policies that conflict
with the monetary policy objectives to correspond with the modern financial system innovation that
will enhance the free flow of investment into the Nigeria economy.
Teams Enable groups of users to work together to streamline your digital publishing. Using co-
integration and granger-causality test analysis, the study. This can be accomplished by expanding the
rate accruing to savings from foreign and local investors. Moreover at the short-run interest rate
spread also negatively but insignificantly affect bank performance in Nigeria. Education, and other
Social Sciences PAPER SUBMISSION EMAIL. Average Capital Employed to Average Total Assets
(KPTEMP): This refers to a bank’s net worth, capital asset ratio or capital adequacy. Generally,
lending rates tend to vary more than deposit rate, such that a loose monetary p olicy that leads to
higher inflatio n would be associated with lower lending rates, and, as a result, lower the interest rate
spreads. In the parsimonious error correction model the test shows that (R 2) is 57% implying a fairly
fitted relationship between the variables and bank loans and advances. The result equally revealed
that exchange rate in the one period lag has a positive and significant impact on investment while
inflation in the one period lag has a negative and insignificant impact on investment. A body known
as the Monetary Policy Committee (MPC) is responsible for formulating monetary and credit policy
in Nigeria. Examining the Relationship between Term Structure of Interest Rates and Econo.
However, for robustness check the model was estimated using the GMM approach. During this
period, most banks in Nigeria maintained their pre-independence era focus on financing trade
transactions. Social Posts Create on-brand social posts and Articles in minutes. Who are the key
people benefitting from this subsidy. The ratio of average capital employed to average total assets
has negative effect but only significant at 10 per- cent in the pooled OLS. From the examination, it
was uncovered that there was a huge connection between financing cost and GDP in Nigeria. The
MPR stands at 15.5%, as of mid-October 2022, and other banks set their lending and savings rates
accordingly. Download Free PDF View PDF Microfinance Banks Investments and Poverty
Alleviation in Nigeria Professor I. G. OKAFOR Investment has been associated with economic
development. In light of these discoveries, it is suggested that the Central Bank of Nigeria (CBN)
ought to structure policy framework on the rate of interest that will dependably support and
encourage culture of savings in the real sector. Their results showed that interest rate volatility
increased bank spreads in Bo- livia and Chile; the same happened with inflation in Co- lombia, Chile
and Peru. It was recommended that CBN should target interest rate with the level of economic
activities to achieve a rate that will adequately encourage investment and promote the level of output
in Nigeria. The re- sults equally showed that increased holdings of liquidity and capital positively
impacted spreads in 2005, while stable macroeconomic environment enhanced more effi- cient
channeling of savings to productive investments. The result found that the interest rate has a slight
impact on growth; however the growth can be improved by lower the interest rate which will
increase the investment. Indeed, spreads decomposition and panel estimations showed that the
reform of the banking sector could be the first step to raise the intermediation effici ency of the
Nigerian bank- ing sector. Others include percentage contribution of financial sector to Gross
Domestic Product, Inflation and Dummy variable (a measure of pre-reform and post reform periods)
on savings mobilization (measured by domestic savings ratio) in Nigeria. The long run dynamic
relationship between broad money supply and the gdp of b. Amarakoon, B. (2009), “The Impact of
Global Financial and Economic Crisis on Africa: Transmission. However, in- crease in bank’s equity
was found to have an adverse effect on margin when the bank faced little interest rate risk. Fourteen
banks licenses were revoked, as they were unable to meet the minimum capital requirement.
Focus should also be made on ways of reducing the abysmally high rediscount rates of deposit
money banks so as to encourage savings. The study was anchored on Modern theory of interest rate.
In order to analyze the extent of the causal nexus among monetary policy, exchange rate and
inflation rate. Specifically high interest rate spreads tend to discourage potential savers and thus
limiting the quantum of funds available to potentials investors. Based on data availability, some of
the potential determinants of interest rate spreads analyzed include cash reserve ratio, ratio of
average capital to average total assets, ratio of loans to total deposit, ratio of aver- age loans to
average total assets, and ratio of non interest expenses to average total assets. Monetary Policy,
Exchange Rate and Inflation Rate in Nigeria. The differences between nominal, effective, and annual
percentage rates have a significant impact that should not be taken lightly. Gross domestic product
(GDP) has negative relation- ship with interest rate spreads while treasury bills and development
stocks have positive relationship with in- terest rate spreads. Real investment will lead to increase in
the level of income and production by increasing the level of production and purchase of capital
goods. It was recommended that a strong monetary policy for Nigeria should be evolved that would
enhance lending to the real sector economy for productive economic activities. It is for these that the
Central Bank of Nigeria (CBN) in 2005, established the Microfinance Policy Framework. Obadan
and Odusola (2001), are of the opinion that savings constrain investments. The Ordinary Least
Square (OLS) method of Regression Analysis was used to estimate the relationship between the
dependent and the independent variables. The Effect of Inflation, Interest Rates and Exchange Rates
on Stock Prices C. The study concluded that, savings has a significant positive impact on industrial
output while the impact of interest rate and inflation rate on industrial output in Nigeria was positive
but i. You can download the paper by clicking the button above. The R 2 at 98.27% indicates that the
variables are strongly fitted which was also confirmed by the adjusted R-2 found to be 98.0%. The t-
test shows that t-cal for MPR is 0.176764 while its prob-value of 0.8608 is significant at 5%
confidence level leading to the rejection that there is significant relationship between monetary
policy rate and bank loans and advances. The results show that a 1 percent in- crease in gross
domestic product will lead to 0.27 per- cent increase in interest rate spreads. The central bank said it
was concerned about “persisting” inflation pressures in the country having seen its annualised
inflation rate rise to a fresh 17-year high in September 2022. The interest rate spreads decelerated to a
singl e-digit value between 1994 and 1996 following government re-imposed control of interest and
exchange rate. But an economic unit has to provide for investment fund. The results show among
other things that cash reserve ratio and loans to total deposits ratio are positively related to interest
rate spreads. Profitability measures such as Return on Investment (ROI), Return on Assets (ROA)
and Return on Equity (ROE) were modeled as the function of Monetary Policy Rate (MPR), Prime
Lending Rate (PLR), Short-term Savings Rate (STSR), Long-term Saving Rate (LTSR), Treasury
Bill Rate (TBR) and Maximum Lending Rate (MLR). It was additionally found that there was a
huge connection between rate for currency exchange and total national output in Nigeria. Add Links
Send readers directly to specific items or pages with shopping and web links. More Features
Connections Canva Create professional content with Canva, including presentations, catalogs, and
more. Additionally, aggregate economic output should be seen as the bane of government policy
thrust, through bringing down of rate charged to lending and expanding rate to savings, as this
improves financial development. The researcher used Ex-post facto research design which was
influenced by the nature of the data used. However, spreads maintained double digit value through
the period 1997 and 2007 at- taining a peak of 24.62 in 2002. On the average over the 0 5 10 15 2 0
86 88 90 92 94 96 98 00020406 Figure 1. The results ob- tained from pooled OLS are quite
consistent with that obtained using the fixed effects in both signs and magni- tude.