The Effect of Deregulation Policies on the Profitability of Banks in Nigeria

Topics: Bank, Interest rate, Economics Pages: 34 (10170 words) Published: February 15, 2013
1.1 Background of the study
Organization, corporations or establishment, just like the governments are governed by rules and regulations, in the same way every economy set out goals, which it achieves, through various means. Vibratory and fiscal policies are the stimulant to any nation economic development, especially with regards to Nigeria.

However, in this study, the attention of this is mainly on the influence of deregulation on banks profitability in Nigeria. The discussion on the deregulation can be effectively carried out without understanding what monetary policy is all about.

In this content, monetary policy could be defined as a policy which deals with discretionary control of money supply by the monetary authorities in order to achieve stated economic goal of society. The performance of the Nigeria economy has on the decline for a long time now. However the central bank has been issuing series of policies through which she tries to stabilize price in the country. The central bank which came into operation since 1959, has introduced monetary measures for the achievement of the national economic objectives, which range from the maintenance of a health balance of payment control or moderation of inflation through the acceleration of the peace of the economic development to the stabilization of the exchange rate of naira with foreign currencies. Deregulation could be defined as the removal of the unnecessary control which tends to inhabit or prevent the effective and efficient programme of economic and business activities. The regulators and deregulation in the banking sector/ industry have favored some banks while some other banks could not stand the weir of constant changes in the monetary and banking policies. However, deregulation goes with its merit which includes; the removal of inhibiting controls on economic activities, encouragement on investment and assurance of efficient allocation of resources.

Over the years, Nigeria economic has witnessed changes in its economic policies. These changes have been carried out by the government and the monetary, growth and development these changes in policies have taken different sectors of the economy, directly including the banking industry. The financial sector and the banking industry in particular, due to its critical position and functions in the economy, have been the major focus of economic reforms. Reforms in the banking industry have taken the form of regulation and presently deregulation prior to 1952: banking industry was devoid of government interference this period regarded by financial operation and analysis as the era of free banking. It was characterized by free entry and exit with minimum of regulated of activities of operations. However, the laissez fair attitude contribution to early bank failure experienced in the industry between the activation of banks given its role as financial intermediaries (claiming saving to investments) in order to build a second and viable financial system. Also, regulation is used to correct distortions in the pricing mechanism of market forces. The country of the activity of the Nigerian banking industry stated with the enactment of the banking ordinance of 1952, which was followed by the central bank act of 1958, the exchange control act of 1962 and the banking act of 1969, the aims of regulation and economic efficiency and effective allocation of resources sometimes, the aims are not fully realized and experience has shown, especially in developing countries, that exclusive control by the stagnation. This is what happened in Nigeria in the early 2008 when the country was facing economic crisis of general rise in price of goods and services, unemployment, external debt problem, fall in total output and dividing revenue caused by fall in oil price.

In other to overcome these economic crisis the country in 2007 to 2009, adopted a form of structural adjustment program (sap) with...
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