Interest Rate Fluctuation Effect on Commercial Bank’s Fixed Fund Deposit in Nigeria
Commercial banks in Nigeria adopted many strategies
to attract fresh deposits including the use of high deposit rate.
However, pricing of banking services moved in favor of the banks at
the expense of customers, resulting in their seeking other investment
alternatives rather than saving their money in the bank. Both deposit
and lending rates were greatly influenced by the Central Bank of
Nigeria (CBN) decision on interest rate. Therefore, commercial bank
effort to attract deposits via manipulation of her rates was greatly
limited, otherwise the banks will be giving out more than it earned.
The study aimed at examining the relationship between interest rate
and fixed fund deposit of commercial banks, how policy-controlled
interest rate affected commercial bank’s fixed fund deposit The
researcher employed ordinary least square technique, using, multiple
linear regression, unrestricted vector auto-regression, correlation
matrix test, granger causality and impulse response graph in the
analysis. Commercial bank’s interest rates affected commercial
bank’s fixed fund deposit significantly while policy-controlled
interest rate did not significantly transmit through the commercial
bank’s interest rates to affect fixed fund deposit. While commercial
banks seek creative ways to expand their fixed fund deposit, policy
authorities in Nigeria should better coordinate interest rate fluctuation
and induce competition in the entire financial sector.
[1] Jhinghan, M.L. (1997), “Macro-Economic Theory”, Vrinda publication
ltd., B-5 Ashish Complex (opp. Ahlcon Public School), Mayur Vihar,
Phase-l, delhi-110 091, India.
[2] Omole, D.A. and Falokun, G.O. (1999), “The Impact of Interest Rate
Liberalization on the Corporate Financing Strategies of Quoted
Companies in Nigeria.” AERC Research Paper #88, African Economic
Research Consortium, Nairobi.
[3] Kaufman, H. M. (1992) “Money and Banking” Massachussets D.C.
Lexington. Health and Company Toronto.
[4] Onwumere, J. U. J. (2010), Characteristics of Underdevelopment, in
Economic Development and Management. Enugu: Quarter Press Ltd.
[5] Kapila, R., Kapila, U. (2001). “India's banking and financial sector in
the new millennium”. Academic Foundation, New Delhi, India.
[6] Akrani, G. (2011), “What is Finance?” London: Mcgraw Hill Higher
Education.
[7] Muraleedharan, D. (2009), “Modern banking-Theory and Practice”,
PHI Publisher, Rimjhim House, 111 Patparganj Industrial Estate, Delhi-
110 092, India.
[8] Dash, M., and Kabra, G. (2010). The determinants of non-performing
assets in Indian commercial bank: An econometric study. Middle
Eastern Finance and Economics, 7, 94-106.
[9] Chizea, B. (1993), Interest rates, Exchange rates and inflation. The
Nigerian banker. Journal of Chartered Institute of Bankers. pp 6-10
[10] Okigbo P.N.C. (1993) “Nigerian Financial System Structure and
Growth”. Harlow, Essex, U.K Longman Group.
[11] Hoque, N., (2012), Industrial Relation: Islamic approach, IIUC Studies,
Vol. 9.
[12] Ahlswede, S., Schildbach, J. (2012), Poised for a comeback: Bank
Deposits. Deutsche Bank, DB Research. www.dbresearch.com [13] Okereke-Onyiuke, N. (2009), A review of market performance in 2008
and outlook for 2009. Retrieved from:
http://scribp.com/doc/10185651/Nigerian-exchange-official-2008.
[14] Koch T.W., MacDonald, S. S. (2003) “Banking Management”5th
Edition. South-Western, Ohio, USA, a division of Thomson learning.
[15] Doyle (2004), “Don’t France me in Fragmeted markets for Technology
and patent acquisition strategies of firms”, Journal of Management
Science, Vol 50 No. 6
[16] Buigut, S., (2009), “Monetary Policy Transmission Mechanism:
Implications for the Proposed East African Community (EAC) Monetary
Union”. Mimeo. Retrieved from: www.csae.ox.ac.uk/conferences/2009-
EDiA/papers/300-Buigut.pdf
[17] Mishkin, F. S., (1995), “Symposium on the Monetary Transmission
Mechanism”. Journal of Economic Perspectives, 9(4): 3-10
[18] Faure, A. P., (2006), “Money, Interest and Monetary Policy”. Cape
Town: Quoin Institute.
[19] Ozdemir, B. K., (2009), Retail bank interest rate pass-through: The
Turkish experience. International Research. Journal of Economic
Studies, 28:7-15.
[20] Bangura L (2011), “adjustment of commercial banks’ interest rates and
the effectiveness of monetary policy: evidence from Anglophone West
Africa”, Department of economics and economic history, Rhodes
university, Grahamstown.
[21] Fuentes, J. R., Ahumada, L. A., (2003), “Banking Industry and
Monetary Policy: An Overview”, Working Papers Central Bank of
Chile, 240, Central Bank of Chile.
[22] Sims, C.A. (1980), “Macroeconomics and Reality”. Econometrica 48
(1):1-48
[23] Mishkin, S.F (1992), “The Economics of Money Banking and Financial
Markets”. 3rd Edition , New York . Harper Collins Publishers.
[1] Jhinghan, M.L. (1997), “Macro-Economic Theory”, Vrinda publication
ltd., B-5 Ashish Complex (opp. Ahlcon Public School), Mayur Vihar,
Phase-l, delhi-110 091, India.
[2] Omole, D.A. and Falokun, G.O. (1999), “The Impact of Interest Rate
Liberalization on the Corporate Financing Strategies of Quoted
Companies in Nigeria.” AERC Research Paper #88, African Economic
Research Consortium, Nairobi.
[3] Kaufman, H. M. (1992) “Money and Banking” Massachussets D.C.
Lexington. Health and Company Toronto.
[4] Onwumere, J. U. J. (2010), Characteristics of Underdevelopment, in
Economic Development and Management. Enugu: Quarter Press Ltd.
[5] Kapila, R., Kapila, U. (2001). “India's banking and financial sector in
the new millennium”. Academic Foundation, New Delhi, India.
[6] Akrani, G. (2011), “What is Finance?” London: Mcgraw Hill Higher
Education.
[7] Muraleedharan, D. (2009), “Modern banking-Theory and Practice”,
PHI Publisher, Rimjhim House, 111 Patparganj Industrial Estate, Delhi-
110 092, India.
[8] Dash, M., and Kabra, G. (2010). The determinants of non-performing
assets in Indian commercial bank: An econometric study. Middle
Eastern Finance and Economics, 7, 94-106.
[9] Chizea, B. (1993), Interest rates, Exchange rates and inflation. The
Nigerian banker. Journal of Chartered Institute of Bankers. pp 6-10
[10] Okigbo P.N.C. (1993) “Nigerian Financial System Structure and
Growth”. Harlow, Essex, U.K Longman Group.
[11] Hoque, N., (2012), Industrial Relation: Islamic approach, IIUC Studies,
Vol. 9.
[12] Ahlswede, S., Schildbach, J. (2012), Poised for a comeback: Bank
Deposits. Deutsche Bank, DB Research. www.dbresearch.com [13] Okereke-Onyiuke, N. (2009), A review of market performance in 2008
and outlook for 2009. Retrieved from:
http://scribp.com/doc/10185651/Nigerian-exchange-official-2008.
[14] Koch T.W., MacDonald, S. S. (2003) “Banking Management”5th
Edition. South-Western, Ohio, USA, a division of Thomson learning.
[15] Doyle (2004), “Don’t France me in Fragmeted markets for Technology
and patent acquisition strategies of firms”, Journal of Management
Science, Vol 50 No. 6
[16] Buigut, S., (2009), “Monetary Policy Transmission Mechanism:
Implications for the Proposed East African Community (EAC) Monetary
Union”. Mimeo. Retrieved from: www.csae.ox.ac.uk/conferences/2009-
EDiA/papers/300-Buigut.pdf
[17] Mishkin, F. S., (1995), “Symposium on the Monetary Transmission
Mechanism”. Journal of Economic Perspectives, 9(4): 3-10
[18] Faure, A. P., (2006), “Money, Interest and Monetary Policy”. Cape
Town: Quoin Institute.
[19] Ozdemir, B. K., (2009), Retail bank interest rate pass-through: The
Turkish experience. International Research. Journal of Economic
Studies, 28:7-15.
[20] Bangura L (2011), “adjustment of commercial banks’ interest rates and
the effectiveness of monetary policy: evidence from Anglophone West
Africa”, Department of economics and economic history, Rhodes
university, Grahamstown.
[21] Fuentes, J. R., Ahumada, L. A., (2003), “Banking Industry and
Monetary Policy: An Overview”, Working Papers Central Bank of
Chile, 240, Central Bank of Chile.
[22] Sims, C.A. (1980), “Macroeconomics and Reality”. Econometrica 48
(1):1-48
[23] Mishkin, S.F (1992), “The Economics of Money Banking and Financial
Markets”. 3rd Edition , New York . Harper Collins Publishers.
@article{"International Journal of Business, Human and Social Sciences:70759", author = "Okolo Chimaobi Valentine", title = "Interest Rate Fluctuation Effect on Commercial Bank’s Fixed Fund Deposit in Nigeria", abstract = "Commercial banks in Nigeria adopted many strategies
to attract fresh deposits including the use of high deposit rate.
However, pricing of banking services moved in favor of the banks at
the expense of customers, resulting in their seeking other investment
alternatives rather than saving their money in the bank. Both deposit
and lending rates were greatly influenced by the Central Bank of
Nigeria (CBN) decision on interest rate. Therefore, commercial bank
effort to attract deposits via manipulation of her rates was greatly
limited, otherwise the banks will be giving out more than it earned.
The study aimed at examining the relationship between interest rate
and fixed fund deposit of commercial banks, how policy-controlled
interest rate affected commercial bank’s fixed fund deposit The
researcher employed ordinary least square technique, using, multiple
linear regression, unrestricted vector auto-regression, correlation
matrix test, granger causality and impulse response graph in the
analysis. Commercial bank’s interest rates affected commercial
bank’s fixed fund deposit significantly while policy-controlled
interest rate did not significantly transmit through the commercial
bank’s interest rates to affect fixed fund deposit. While commercial
banks seek creative ways to expand their fixed fund deposit, policy
authorities in Nigeria should better coordinate interest rate fluctuation
and induce competition in the entire financial sector. ", keywords = "Commercial bank, fixed fund deposit, fluctuation
effects, interest rate.", volume = "9", number = "6", pages = "2152-5", }