CHAPTER ONE

RESEARCH DESIGN

1.1 INTRODUCTION

There is now substantial body of evidence indicating that high rate of

inflation can have an adverse effect either for an economys long run rate of
growth or its long-run level of the real activity. These findings raised obvious
question by what mechanism can perfectly be understood and permanent
increase in the inflation rate effects on long run real output.

A growing theoretically literature describes mechanism whereby every

predictable increase in the rate of inflation interfere with the ability of financial
sector to allocate resources effectively, more specifically theories emphasis the
importance of inflation asymmetries in credit market frictions with negative
repercussions for financial sector performance and therefore long-run real
activity. The common feature of those theories is that there is an information
friction whose severity is indigenous. Given this features, an increase in the
rate of inflation drives down the real rate of return not just on money, but on
asset in general. The implied reduction in real returns exacerbates credit market
frictions. Since those frictions lead to the rationing of credit, credit rationing
becomes more severe as inflation rises as a result, the financial sector makes
fewer loan resources allocation is less efficient and intermediary activity
diminishes with adverse implications for capital investment the reduction in
capital formation negatively influence both long-run economic performance
and equity market activity where claims to capital ownership are traded.

Existing models also emphasize that only when inflation exceed certain
critical rate that informational fractions necessarily pay a substantial role e.g.
1
Azortadis and Smith (1996) or Bayd, Choi and Smith (1997) when inflation is
very low, credit market frictions may be non bidding so that inflation does
not distort the flow of information or interfere with resources allocation and
growth. However, once the rate of inflation exceeds some threshold level,
credit market frictions becomes binding and there is a drastic drop in financial
sector performance and credit rationing intensifies.

Those models father predict the existence of a second threshold rate of

inflation. Once inflation exceeds this threshold, perfect foresight dynamics are
associated with indigenous fluctuation in all variables so that inflation is highly
correlated with inflation variability and asset return volatility.

1.2 STATEMENT OF THE PROBLEM

The Nigerian banking in recent times has witnessed so much effect on

its lending with particular reference to inflation has called for concern. The
inflation controversy has been addressed by experts with a lot of pessimism of
different views regarding bank lending and the economy at large.

The problems associated with this can expressed in question as follows:

Does inflation affect bank lending?

Why do banks lend money?
Does inflation have positive or negative effect on bank lending?
Does inflation encourage savings?
1.3 OBJECTIVE OF THE STUDY

This research work is aimed at providing the necessary answer to the

question that puzzles in the mind of the readers that banking system in the

2
economy plays the important role of promoting the achievement of the
following objectives.

i. To investigate the effect of inflation on bank lending activities.

ii. To evaluate the implication of the effect of inflation on bank lending.
iii. Develop strategies which banks could hedge themselves against the
negative effects of inflation (if any) in order not to affect their
lending.
1.4 SCOPE OF THE STUDY

The total point of this research work is the evaluation of the effect of
inflation of the bank lending policy, highlighting the operating characteristics
and the data for the research will cover the period from 2011-2014.

Reference will be given to evaluate the effect of inflation on bank

lending activities in the ongoing development process in Nigeria, this is going
to be concentrated on U.B.A main branch PLC Jos.

1.5 SIGNIFICANT OF THE STUDY

This research will give clear understanding of the effect of inflation in

the economy and explain certain lending actions of commercial bank.
Therefore the study will be beneficial to the bank itself, so as to allow policy
makers (which includes central banks and government officials) to do their job
better, it improves the quality of their lending and safeguarding financial
stability.

The study will also be beneficial to the to the customers, bank investors
so that they know the effect of inflation on bank lending when they tend to
borrow from the bank.

3
 Students of business studies will also benefit from this study to be
conversant with the inflation rate on commercial bank lending.

1.6 LIMITATION OF THE STUDY

In order to write a successful and comprehensive project, different

problems must have been faced in one way or the other due to various reasons.
Therefore this study had the following limitations.

i. The researcher was faced with problem of how best to start or

proceed but however this was overcome.
ii. The researcher was faced with the problem of the population
considered and the inability of the respondents to respond on time to
the questionnaires.
iii. The researcher was faced with unwillingness of the company to
release data at the first contact for fear of competition and witch-
hunt, however this was resolved.
iv. There was the constraint of inadequate time to carry out the research
work as intended.
v. The researcher was faced with financial predicament that leads me
narrow down the scope of study to the selected case study.
1.7 HISTORICAL BACKGROUND OF THE CASE STUDY

UBAs has more than 65 years of providing uninterrupted banking

operations dating back to 1984 when the British and French bank Limited
(BFL) commenced business in Nigeria. Banque Nationale de credit (BNCL),
Paris, which transformed its London Branch into a subsidiary called the British
and French bank, with shares held by Banque Nationale de credit and two
British investment firms, SG Warburg and company and Robert Benson and

4
company. A year later BFB opened its office in Nigeria to break a monopoly of
the two existing British owned banks in Nigeria then.

Following the Nigeria independence from British, U.B.A was

incorporated on 23rd February 1961 to take over the BFB (British and French
Bank) U.B.A eventually listed its shares in the Nigerian Stock Exchange
(NSE), in 1970 and became the first Nigerian bank to subsequently undertake
and initial public offering (IPO), U.B.A became the first sub Saharan bank to
take its banking business to North America when it open its New York office
(U.S.A) in 1984 to offer banking service for African in Diaspora.

Today U.B.A emerged from the merger of then dynamic and fast
growing standard trust bank, incorporated in 1990 and U.B.A, one of the
biggest and oldest bank in Nigeria. The merger was consummated on August
1, 2005, one of the biggest merger done on the Nigerian stock Exchange
(NSE), following the merger, U.B.A subsequently went ahead to acquire
continental trust bank in the subsequently acquired trade bank in 2006 which
was under liquidation by the central bank of Nigeria (CBN), U.B.A) had
another successful combined public offering and right issues in 2007 and made
further banking acquisition of three liquidated banks namely: City express
Bank, Metropolitan Bank, and Africa express bank. Some management of the
United Bank for Africa includes: Tony Elumelu; chairman of the board Philips
Oduoza; group managing director, Kennedy Uzoka; Deputy managing director,
Joseph Keshi; Vice chairman of the Boad.

1.8 DEFINITION OF TERMS

Inflation: a general rise or continuous change or where the value of money is

declining.

5
Lending: where a bank can give out loan to its customers, is known as lending
which is expected to be paid with interest.

Bank: a building in which the business of banking is transacted i.e collecting

of customers deposit.

Money: is anything that is generally acceptable for payment and settlement of

debt.

Loan: a thin that is borrowed, especially a sum of money that is expected to be

paid back with interest.

Credit: the ability of a customer to obtain goods or services before payment

based on the trust that payment will be made in the future.

Volatility: in finance, volatility is the degree of variation of trading price series

overtime as measured by standard deviation of returns.

Investments: is the purchase of goods that are not consumed today but are
used in future to create wealth.

6
 REFERENCES

Eguzoikpe, E.E (2003). Research Methodology, A practical Treaties for

Students; FON Nigeria Ltd Jos.

Osuala, E.C (1982). Introduction to research Methodology, African Federal.

Publishers Ltd, Onitsha, Nigeria.

Bereh, N.M (2010) A Practical Guide to Research Writing Jos Professional

Tutors Consults, Jos

7
 CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

Lending which may be short, medium or long-term basis is one of the services
that commercial bank to render to their customers, in other words banks to grant
loans and advances to individuals, business organization as well as government in
order to enable them embark on investment and developmental activities as a means
of aiding their growth in particular or contributing toward the economic development
of a country in general.

Commercial banks are the most important savings mobilization and financial
resources allocation institution. Consequently, those roles make them an important
character in economic growth and development in performing this role. It must be
realized that banks have the potential scope and prospects for mobilizing financial
resources and allocating them to productive investments. Therefore, no matter the
sources of generation of income or economic policies of the country, commercial
banks would be interested in giving out loans and advances to their numerous
customers bearing in mind the three principles guiding their operations which are
profitability, liquidity and solvency. However, commercial banks decision to lend out
loan are influence by a lot of factors such as the prevailing interest rate, the volume
of deposit, the level of the domestic and foreign investment, bank liquidity ratio
prestige and public recognition to mention a few.

Lending practice in the world could be traced to the period of industrial

revolution which increased the pace of commercial and production activities thereby
bringing about the need for large capital outlay for projects money caption of
industry at this period were unable to meet the sudden upturn in the financial
8
requirements and therefore turn to the banks for assistance. However, the emergence
of bank in Nigeria in 1872 with the establishment of the banks in the scene during the
colonial era witness the beginning of bank lending in Nigeria. Though the lending
practices of the then colonial banks were based and discriminating and could be said
to be good lending practices as the expatriates were given loans and advances. It is
among other reasons that led to the establishment of indigenous banks in Nigeria.

Prior to the advent of structural adjustment programme (SAP) in the country in

1986, the lending practices of banks were strictly regulated under the close
surveillance of the bank supervisory bodies. The SAP period brought about some
realization of the stringent rules guiding banking services. The banks and other
financial institutions act amended. (BOFIA) 1998, required bank to report large
borrowing to the C.B.N the C.B.N also required that their total value of loan credit
facility or any liability in respect of borrower of any time should not exceed 20% of
the shareholders fund unimpaired by losses in the case of commercial banks.

2.2 STRUGGLE BETWEEN LENDING AND INFLATION

Central bank has responded to the current financial crisis with unprecedented
programme of lending to the banks and other financial institution. In some cases this
lending has led to substantial increase in the monetary base. Can such lending
programme cause an increase in inflation? If so, under what circumstances
investigate those questions in a dynamic general equilibrium model illustrates how
unsterilized central bank loan of currency can improve welfare during a liquidity
crisis and also shows how such lending can introduce less desirable equilibrium with
light inflation. Other form of lending include sterilized loans using central bank
bonds can capture the same benefit without introducing the higher inflation
equilibrium.

9
 One does not need to be very old to know that a few years ago, many goods
could be purchased with less money than today Wood and Onuya (1982:72) reason
for this is called inflation.

Ojo, (1982:148) defines inflation as the high and persistent rise in the general
price level when prices are increasing rapidly, we refer to this as galloping inflation,
but when it is rising gently, this is called creeping inflation. Lipsey (1984:450) says
inflation as an increase in the price, wages and money supply can be regarded as
inflation. They can also be a cause of inflation because they add procedures cost and
may be incorporated in higher prices to customers.

We have the federal government and the central bank pumping liquidity in to
the system in a desperate attempt to support the asset markets and the economy on
the other side we have the private sector which is being forced to curtail lending due
to heavy losses in the credit spreads, complicating matters in the feed that both
advances have powerful allies. The federal have the treasury and the government as
well as the wall street elite, as allies, the government could implement massive tax
cuts in order to stimulate economic activity. The treasury could bail out financial
institutions, which in reality should be punished by bankruptcy and the money wall
street elite will ensure that politicians and the federal make it possible for them to
continue their con game.

Inflation is a powerful for the private sector because it squeezes corporate and
orbs personal consumption. Cost of living increases vastly exceed the reportedly
inflation figures and are squeezing the custom of which leads to revenue pressure for
the corporate sector.

10
2.3 HISTORICAL BACKGROUND OF BANK LENDING

The history of bank lending refers to the development of banks and banking
throughout history, with banking defined by contemporary sources as an organization
which provides facilities for accepting of deposits and provision of laons.

Rajeshri Nathwani (2004), gave a brief history of bank lending. The history of
bank lending dates back to the barter period and the period when Goldsmith were
used as acceptors of deposits from the public. Banking developed out of the
goldsmith who developed the practice of storing peoples gold and valuables for safe
keeping. At first, such establishments were simply like warehouse.

Depositors left gold for safekeeping abs were given receipts which they would
present for the goldsmith for their gold or valuables after paying a little change to the
goldsmith. At apt, the goldsmiths discovered that not all the depositors of gold came
at the same time to collect them, the goldsmiths started to lend out these services, this
marked the origin of lending in the history of banking.

The major different between the goldsmith system of banking and today
system of banking is that it is not the particular depositors money that is given back
to him when he calls for it but the value of what he deposited whether his own or
others in our economy today. There is much development in the system of banking
compared with that obtained during the time of goldsmith.

Today, we operate different types of banking development, merchant and

commercial banking. However, in the discus, we should focus mainly on commercial
banking as demanded by the topic.

Nigeria commercial banks while applying their mainly in loans and advances
encounter problem in credit advances to the most indigenous, customer is often

11
regarded as our money or our own share of the Ori Boom while is meant not to be
repaid. The success and growth of all commercial banks depends on the satisfactory
services which customer receive and the confidence they repose on them.

Most of those earlier studies agreed on the fact that it is logical for banks to
have some basic lending principles or consideration to act as a check in their lending
activities, since there are many studies in respect of bank lending behavior, it is
therefore imperative to highlight and consider some factors that economist and
professionals alike have proposed as virtually significant in explaining the
determinant of commercial bank lending heavier.

Nwankwo (2002) credit constitutes the largest single income earning asset in
the portfolio of most banks this explains why banks spends enormous resources to
estimate, monitor and manage credit quality.

Chodelia (2004) while investigating factors that affect interest rates degree
volume and collateral setting in the loan decision of banks says banks have to be
careful with their pricing decision as regards to lending as banks control of charge
loan rates that are too low because the revenue from the interest income will not be
enough to cover the cost of deposits. Moreover, charging high loan rates also create
adverse problems from borrowers.

Azerion (2005) further stated that bank lending decisions generally are fraud
with great deal of risk which calls for great caution and fact in this aspect of banking
operations this success of every lending activities to great extent therefore, hinges on
the part of the credit analyst to carryout good analysis, presentation, swash buckling
and reporting.

In like manner John (1993) commenced that the ability of commercial banks
to promote growth and development depends on the extent to which financial
12
transactions are carried out with trust and confidence and less risk they require safe
and sound banking operations such instrument include a rigidly administered interest
rate structure, directed credit and stabilizing liquid control measures.

2.4 CONCEPTUAL FRAMEWORK

2.4.1 THE CONCEPT OF INFLATION

There is no universal acceptable definition of inflation it means general level of

prices. A precise meaning of inflation has been a matter of economists below is a
handful of defined inflation by different authors.

Pigou in 1976 defined inflation in the following words inflation exists when
money, income is expanding more than in proportion to increase in meaning
activity. To coulborn, inflation is a situation of too much money chasing few goods.

According to Arkly (2016) inflation is a persistent and appreciable rise in the

general level of average of prices. Harry Cr. Johnson defines inflation as a sustained
rise in prices.

In this view Samuelsson (1973) inflation denotes a rise in the general level of
prices. Shapiro defines inflation as a persistent and appreciable rise in general level
of prices Demberg and Mc Gougold (1970 defined inflation as a continuing rise in
price as measured by an index such as the consumer price index (CPI) or by the
implicit price deflator for Gross National product.

R. Bonfebrenner and Hazmon (1994) have suggested a number of alternative

definitions of inflation, their alternative definition makes things more fuzzy rather
than adding charity of inflation.

13
 Busola Ojumo (2016) Inflation occurs when the volume of purchases is
permanently running ahead of production and too much money in circulation chasing
fewer goods.

Consequently, inflation reflects a reduction in the purchasing power per unit of

money-a loss of real value in the medium of exchange and unit of account within the
economy. A chief measure of price inflation is the inflation rate. The annualized
percentage change in general price index (normally the consumer price index) over-
time.

2.4.2 THE CONCEPT OF BANK LENDING

There are diverse definitions of bank lending, but for the purpose of this study,
a few of these definitions are:

According to economic dictionary, bank lending is the provision of money

temporary by bank to borrowers on condition that the amount borrowed returned,
usually on interest fee. Bank lending is a loan from a bank to an individual or firm.

Cambridge business dictionary defines bank loan as the total amount of money
that have been lend by banks in a country or region, it also defined bank lending as
the act of lending money to customers especially when considered within a whole
country or a system of banks.

Bank loan is an extension of credit to a customer or business in form of

borrowed fund which has to be paid back with interest.

Richardson defines bank lending as the practice of providing, giving or making

fund available by bank to economic units, individuals, households, firms and
government temporarily on either short or long term basis usually interest.

14
2.5 THEORIES OF BANK LENDING

Banks want to lend money because it is the way they make money. However,
they only want to lend money to a borrower who is able to repay the loan in full.

The Webster bank (2013) analyze the credit worthiness of borrower by using
the 6 Cs of credit; character, capacity, capital, collateral, condition and capability,
which help the bank to determine the overall risk of the loan.

i. Character: this is a highly subjective evaluation of the business owners

personal history lenders have to believe that a business owner is a reliable
individual who can be depended on to repay the loan. Background
characteristics such as personal credit history, education and work experience
are all factors in this business credit analysis.

Character is the single most important factor considered by a reputable bank.

Banks want to do business with people who are honest, Ethical and fair. A persons
character is the difference between the ability to repay a loan and the willingness to
repay a loan.

ii. Capacity: this is an evaluation of the companys ability to repay the loan.
The bank needs to know how you will repay before it will approve your loan.
Capacity is evaluated by several components, including cash flow, payment
history and contingent sources for repayment.
iii. Capital: a companys owner must have own funds invested I the company
before a financial institution will be willing to risk their investment capital is
the owners personal investment in his/her business which could be lost if the
business fails. There is no fixed amount or percentage that the owner must be
vested in his or her own company before he or she is eligible for business

15
 loan. However, most commercial banks wants to see that at least 25% of a
companys funding coming from the owner.
iv. Collateral: machinery, accounts receivable, inventory, and other business
assets that can be sold if a borrower fails to repay the loan are considered
collateral. Collateral is considered a secondary source of repayments.
Banks want cash to repay the loan, not sale of business asset.
v. Conditions: this is an overall evaluation of the general economic climate and
the purpose of the loan. Economic conditions specific to the industry of the
business applying for the loan as well as the overall state of the countrys
economy factor heavily into a decision to approve a loan. Clearly, if a
company is a thriving industry during a time of economic growth, there is
more of chance that the loan will be granted than if the industry is declining
and the economy is uncertain.
vi. Capability: banks need to be sure that the person/people making the business
decisions know that they are doing. They have to be above 18 years because
the bank cannot operate with a minor. The loan officer in order to avoid
mismanagement would want to know the professional background, previous
business experience, relevant education and level of success of the business
owner.

2.6. THE ROLE OF BANK LENDING IN ECONOMIC GROWTH AND

DEVELOPMENT

The lending process as it pertains to my case study (U.B.A main branch) has
immensely contributed to the development of the Nigerian economy.

Chidi Rafael (2015) bank lending is very relevant to all sectors in the economy
both private and public sectors because it is one of the major sources of finance.

16
Banks in this idea entails commercial banks, which mainly grants short term credit
facilities and development banks which grant medium and long term facilities. The
latter include Nigerian Agriculture and rural development bank and Nigeria industrial
development bank.

At present time, there is a lot of changes in both commercial and industrial

sectors. New structure abound all over the country, commercial activities have the
order of the day. Traders can easily secure loan and over draft in order to raise capital
for their commercial activities especially in commercial cities.

U.B.A, has helped many customers in the area of credit facilities to enable them
to finance various projects. Bank lending plays an important role in influencing levels
of consumer spending, investment and economic growth.

This recommends that federal government of Nigeria through the central bank of
Nigeria (CBN) should strengthen the banking sector to ensure an improved credit
strategic importance in creating and generating growth and development of the
economy.

Therefore, the problem of lack of fraud for the execution of private and public
projects has been ameliorated through bank lending especially U.B.A.

2.7 EFFECTS OF INFLATION ON BANK LENDING

The effect of inflation often has been that banks do unit their lending strength to
the bearest minimum, inflation also affects bank lending through its effect on
accounting; it can seriously distort accounting records.

According to Gold Schmidt and Adam (1977:11) the economic activities of

banks are recorded by an accounting system that applies monay as the common scale
for measuring all activities. As the scale of measurement (the purchasing power of

17
money) changes, conventional accounting reports, budget and standard cost and price
are all distorted and cannot be used to manage the bank appropriately.

The consequence of this, according to Stridger and Strizer (1976:179) is that

during inflation period, historic accounting is adequate in four (4) respects

i. Depreciation provisions are not realistic since they are based on the
original cost of an asset, not on current inflated value.
ii. Profit appears larger than they actually are, to the extent that stock profit
arises from general price increase.
iii. No accounting credit is given for the appreciation derived from
borrowed money, when the liability has been effectively reduced by
inflation.
iv. Holding cash becomes a liability as higher interest rates are offset by the
decline in the value of money held.

During inflation, the amount of the loan principle becomes relatively less
significant as the inflation greatly increases the money earnings and loans repayment
remain fixed even for payment requires new borrowing, the burdens of new loan also
erodes, the inflation continues.

Therefore, it can be rightly said that the fall in real value of the naira has reduced
the real weight of whatever lending interest the bank will receive when the money is
paid.

2.8 REMEDIES TO CONTROL INFLATION

Investors, banks individuals and government began to wonder how inflation has
come to be the orders of the day in the economy. It is as a result of this that necessary
measures are put in place to help reduce the distortion on value of goods and services.

18
 Lucky (1997:32) states that inflation is pulled out by the means of contractionary
method, which helps reduce the value of excess of money in circulation. It is as a
result of this tragedy that monetary policy has recognition and action lag.

Hence forth the control of inflation becomes as effective as the recognition log
was basically concerned with the identification of changes in the economy during the
period of inflation, it then becomes necessary for an action to be taken whenever the
changes been ascertained, and this was paramount the work of action log.

Inflation can also be reduced in the following ways:

1. Central bank intervention by withdrawing the excess supply of money in

circulation. This could be achieved using the following:
a) Open market operation (OMO): this involve the purchase and sales of
securities in the open market to influence the total amount of money in
circulation. This was a major instrument of monetary policy in 1977 and was
conducted mainly in government securities.
b) Bank rate: this policy is to influence the market rate of interest which plays
a crucial role in the creation of credit.
c) Moral suasion: this is friendly persuasion and advice between government
and the banks.
d) Selective credit control: this is a directional control to influence the flow of
credit in a particular channel or section.
e) Reserve ration: is the variation of the minimum reserve which commercial
banks must keep with the central bank to influence the lending power or the
ability to create credit of commercial banks.
2. Bank credit should be frozen and bank rate should be raised so as to discourage
borrowing.

19
3. Control of wages and salaries of workers.
4. Government may decide to tighten restriction of higher purchase.
5. Government excess spending should be curtailed.
6. Price of essential commodities should be controlled.

However, Cagon (1997:10) summaries inflation in three (3) prepositions: first,

when aggregate expenditure expands faster than the flow and services, the expansion
pulls ups up prices and support rising price level. Secondly, excess aggregate demand
may originate from a variety of development, such as increasing in government
budget or a vigorous cynical expansion in private expenditure and thirdly, a rise in
the money balance is necessary to support and given time will produce excess
aggregate demand.

To overcome the above three (3) prepositions, excess spending by government

offices must be checked by a code of conduct bureau.

Wages and salaries should have static and standard rates at all times regardless of
changes in the economy. So also agricultural production should be encouraged in
order to equate demand and supply.

20
 REFERENCES

Adedoyin & Sobodun (1991), Commercial Bank Lending in Nigeria. Nigerian

Financial Review, 5.9 (3) Pp. 36-37.

Adekanye, F. (1986). Element of Banking in Nigeria. 3rd Edition. FXA Publishers

Ltd, Lagos Pp. 130-138.

Alwankwo, G.O (2000) Organization For Financial Risk Management

Hudsion, J. (1982) Inflation, a Theoretical Survey and Survey synthesis, George

Allen and Union Publishers, London, P.1

Jhingon, M.L (2001) Monetary Economics, 5th Edition. Vrinda Publication ltd Delhi,
India P232.

Lipsey, R.G (1989). An Introduction to Positive Economics, ELDS/Weidenfield and

Nicolson Ltd London Pp. 40

Ojo, J.A.T (1999) Roles and Failures of Financial Intermediation by Bank. CBN
Bulletin, 22 (2) P10.

Osayameh, R. (1991) Lending & Credit Administration Mode for Commercial

Banks Nigerian Financial Review 4(2) Pp 55-60

Stredzer, A.C et al (1976) Information Management, J. Willey and Sons, New York
P. 179

Usman (1976) Bank Regulations and Supervision in Nigeria the Nigerian Banks Pp.
79.

Wood, F & Omaya, J.O (1982) Business accounting 1:Longman House, Burnt Mill,
Harlow, England. P. 10

21
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

In this chapter, the stages or procedures, techniques of analysis and materials

used for carrying out research study are analyzed in summarized form.

The researcher will present the various instruments adopted in this study like the
population size, sample size, sampling techniques, sources of data and method of
collection research methodology is based on inductive and deductive reasoning and
the result is based on statistical analysis and presentation.

3.2 TARGET POPULATION

Population is simply the totality of the collection of individuals, objects or

measurement whose properties are under investigation Eguziokpe (2003:77) in
research study every member of the population of the case study should be involve as
a respondent.

The population in this research however is the U.B.A main branch PLC Jos.

3.3 SAMPLE SIZE

A sample is a subset of population, a population chosen to represent the entire

subjects or observations under consideration(Eguziokpe 2003:78)

The sample size of this research work constitute of thirty (30) individuals, which
consist of 10 bank customers 20 bank staff (10 senior Staff and 10 Junior staff).

22
3.4 SAMPLING TECHNIQUES

In an effort to avoid data collection from being cumbersome a sampling

mechanism is adopted. sampling is a mechanism of choosing designated quantities
or properties as representatives of the whole population (Eguziokpe 2003:77)

There are six (6) types of sampling technique:

i. Simple random sampling (SRS)

ii. Stratified sampling
iii. Multi-stage or cluster sampling
iv. Systematic sampling
v. Quata sampling
vi. The random sampling

In this research work, the simple random sampling will be used in order to give
every member of the population an equal chance of being induced in the sample. The
inclusion of an item of the population in the sample is based purely on chance
occurrence.

The result of findings of this sample will be generalized on the population.

3.5 METHOD OF DATA COLLECTION

Two methods of data collection are used in this research work. They are primary
and secondary method of data collection.

a) Primary data collection: it refers to data collected from its original sources
for a special purpose therefore the research instrument use for generating this
data.

23
 i. Questionnaire:

This researcher distributes a list of prepared and typed questionnaires for data
collection to the members of the sample. The questionnaire will be distributed locally
by the enumerator. Also, the questions asked in the questionnaire just like the
interview are relevant to the topic under study

ii. Interview

This refers to an interactive session in which the researcher direct question to a

member of his sample who in turns give him response to the said questions.

a. Secondary data collection

It refers to data not originated by the person conducting the enquiry, but taken
from a secondary source.

Secondary data are usually taken from published sources which are useful in
production and economy control. These data are discommended for other purposes on
are adjusted before use.

Moreover, to ensure safety as a researcher, the source of such data collected must
be known how it is obtained, and the method for its compilation.

3.6 METHOD OF DATA ANALYSIS

The questionnaires have been designed in such a way the respondent would not
find it difficult to go through the questions while filling it. The questions will have
easy understanding and have a choice of YES or NO.

To adequately present and analyze data, researcher, shall use table to present
data in summary and in accurate manner in a tabular form. The simple average

24
method will be used to determine the result of the questionnaires distributed. To
ascertain the average method, the formula shall be used as:

Number of respondents to questionnaire X 100

The total number of questionnaires administered 1

25
 REFERENCES

Eguzoikpe, E.E. (2008), Research Methodology, a Practical Treatise for Students. 2nd
Edition. Jos Quality Function Publishers.

Olusola, A.J (1998). The Preparation and Presentation of Research Project. Jos.
Planning research publication PP.13

26
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION

Data presentation and analysis involves the use or conversation of the serious
observation obtained, through interviews and questionnaires to make inference. Such
data may not be meaningful unless they are sorted out and organized for presentation
in form of Bar chart, Pie chart, graphs, and frequency table, the arrangement mostly
depends on statistical technique.

In this chapter, the researcher will present and analyze the various data
collected of the course of the study. The researcher will employ the use of simple
percentage in making the analysis of data collected from the questionnaires.

4.2 DATA PRESENTATION

The data collected using the data collection method as define in chapter three
(3) are organized and presented by the use of tables and percentage. The raw material
presented here helps to provide solution to the researchers problems leads to
analysis. This data are collected and presented on a tabular form for easy
understanding.

A structural questionnaire was designed and administered to the public (bank

staff and customers) and out of thirty (30) questionnaires distributed, all the 30 were
returned. The researcher therefore will present the data or information base on the
returned questionnaires with clear specification as to whether bank staff or customer.

27
4.3 DATA ANALYSIS

The below analysis are from the questionnaire been issued out to the first bank
of Nigeria. Each table contains the percentage, number of respondent and lastly
variables.

Also this part help us and the researcher have a knowledge or idea on how
things or activities is been carried out.

Note: the table below will be presented base on the responses from bank staff which
the population amounted to 20 respondents.
Question 1: does inflation have any effect on bank lending?

Table 1

Variable Respondent Percentage %

Yes 17 85
No 3 15

No idea - -

Total 20 100

Source: field survey, 2016

From the table above it can be seen that 17 respondents which represent 85% of
the staff thinks that inflation has an effect on bank lending and 3 respondent
representing 15% thinks that inflation has no effect on bank lending while non had
any idea.

Question 2: has your organization has any need to develop or adopt new lending
techniques due to inflation?

28
Table 2

Variable Respondent Percentage %

Yes 20 100
No - -

No idea - -

Total 20 100

Source: field survey, 2016

Table 2 above shows that 20 respondents representing 100% affirm that their
organization needs to develop and adopt new lending technique as a result of
inflation while, none was of a contrary opinion.

Question 3: are you of the opinion that inflation reduce value of interest rate on bank
lending?

Table 3

Variable Respondent Percentage %

Yes 20 100
No - -

No idea - -

Total 20 100

Source: field survey, 2016

Table 3 shows that 20 respondents representing 100% believe that inflation

reduce the value of interest rate on bank lending, while none was of a contrary
opinion.

29
Question 4: would you say that inflation has significant effect on financial record?

Table 4

Variable Respondent Percentage %

Yes 14 70
No 6 30

No idea - -

Total 20 100

Source: field survey, 2016

From the table above it can be seen that 14 respondents representing 70% are
of the opinion that inflation has significant effect on financial record and 6
respondents representing 30% express a contrary opinion while none had any idea.

Question 5: would you say that inflation has significant effect on bank staff?

Table 5

Variable Respondent Percentage %

Yes 16 80
No 4 20

No idea - -

Total 20 100

Source: field survey, 2016

Table 5 above shows that 16 respondents representing 80% agrees that

inflation have significant effect on bank staff, while 4 respondents representing 20%
express a contrary opinion, while none has any idea.

30
Question 6: does the banking sector perform better in time of inflation period?

Table 6

Variable Respondent Percentage %

Yes 9 45
No 11 55

No idea - -

Total 20 100

Source: field survey, 2016

It is revealed by the table above that 9 respondents representing 45% are of the
opinion that banking sector perform better during inflation period, and 11
respondents representing 55% did not subscribe to that, while none had any idea.

Question7: would you subscribe to the opinion that inflation leads to

unemployment?

Table 7
Variable Respondent Percentage %

Yes 4 20
No 16 80

No idea - -

Total 20 100

Source: field survey, 2016

31
 The above data shows that 4 respondents representing 20% are of the opinion
that inflation leads to unemployment, 16 respondents which represents 80% held a
contrary opinion, while none had any idea.

Question 8: does inflation encourage savings?

Table 8

Variable Respondent Percentage %

Yes 6 20
No 14 80

No idea - -

Total 20 100

Source: field survey, 2016

It is revealed from the table above that 6 respondents representing 201% are of
the opinion that inflation encourage savings, 14 respondents representing 80% held a
contrary opinion while none had any idea.

Question 9: Does the bank have challenges when giving out loan?

Table 9

Variable Respondent Percentage %

Yes 20 100
No - -

No idea - -

Total 20 100

Source: field survey, 2016

32
 The data above shows that all the 20 respondents representing 100% are of the
opinion that bank has challenges when giving out loans and none is with contrary
opinion.

Question 10: what challenges do the banks face when obtaining back the loan?

Table 10

Variable Respondent Percentage %

Unstable government 4 20
Lack of cooperation by 5 25
customers
Economic situation 3 15

Inflationary effect 3 15

Regulatory and market 2 10

challenges
Lack of consistency 3 15

Total 20 100

Source: field survey, 2016

The above data shows that 4 respondents representing 20% are of the opinion
that unstable government is the challenge faced by banks when obtaining back the
loan, 5 respondents representing 25% stated that lack of cooperation by customers is
one of the challenges, 3 respondents representing 15% are of the opinion that
economic situation is the challenge, 3 respondents representing 15% stated that
inflationary effect is the challenge faced by banks, 2 respondents representing 10%
stated that regulatory and market challenge is the effect faced by banks and 3

33
respondents representing 15% are of the opinion that lack of consistency is the
challenge faced by banks.

Note: the tables below will be presented base on the responses from customers which
population amounted to 10 respondents.

Question 11: what discourages the customers from obtaining loan?

Table 9

Variable Respondent Percentage %

Bank lending policy 2 20

High interest rate 4 40

Long processes 1 10

Unstable government 3 30

Total 10 100

Source: field survey, 2016

Table 11 shows that 2 respondents representing 20% stated that bank lending
policy is one of the discouragement, 4 respondents representing 40% stated that high
interest rate is the reason, 1 respondent representing 10% gave the opinion of long
processes as a reason, and 3 respondents representing 30% stated that unstable
government is what discourages customers from obtaining loan.

34
Question 12: is the repayment period of loan favourable to the customers?

Table 12

Variable Respondent Percentage %

Yes 8 80
No 2 20

No idea - -

Total 10 100

Source: field survey, 2016

Table 12 shows that 8 respondents representing 80% of the customers affirm that
the repayment period is favourable to them, and two respondents representing 20%
held a contrary opinion while none had any idea.

Question 13: are loans given to beneficiaries during inflation fully utilized?
Table 13
Variable Respondent Percentage %

Yes 8 80
No 2 20

No idea - -

Total 10 100

Source: field survey, 2016

The table above shows that 8 respondents representing 80% are of the opinion
that the loans given to beneficiaries during inflation are fully utilized, 2 respondents
representing 20% are of a contrary opinion.

35
Question 14: must loans and advances granted be accompanied by collaterals?

Table 14

Variable Respondent Percentage %

Yes 10 100
No - -

No idea - -

Total 10 100

Source: field survey, 2016

Table 14 shows that 10 respondents representing 100% affirm that loans and
advances granted should be accompanied by collaterals while none was of a contrary
opinion.

Question 15: has government respond in respect of inflation?

Table 15

Variable Respondent Percentage %

Yes 3 30
No 7 10

No idea - -

Total 10 100

Source: field survey, 2016

From the table above, 3 respondents representing 30% are of the opinion that
government has respond in respect of inflation, while 7 respondents representing 70%
are of a contrary opinion and none had any idea.

36
 CHAPTER FIVE:

CONCLUSION

5.1 INTRODUCTION

In efforts to summarize the findings gathered in the preceding chapters, the

research revealed the effect of inflation on bank lending of U.B.A main branch. The
researcher adopted questionnaire method for the collection of primary data 20 bank
staff and 10 customers were issued questionnaires. The simple percentage method
was adopted for the purpose of getting an accurate representation of the population.
Throughout the work, the researcher made use of tables and percentage to make
comparison while analyzing data.

This chapter is the concluding part of the conclusion drawn are presented here.
We should make our recommendation here.

5.2 SUMMARY OF FINDINGS

After all process of carrying out the research has been concluded, we present our
finding here.

High interest rates affect bank lending, because when bank charge high interest
on loans, customer tends to be discouraged from borrowing.

It has also been discovered that loan given to beneficiaries during inflationary
period are fully utilized by prospective borrowers (customers)

The borrowers tend to gain at the expense of lenders (bank) during inflation,
because the value of interest rate on loans is reduced.

It has been uncovered that inflation does not lead to unemployment as revealed
by the bank staff.
37
 The findings also show that inflation distorts the value of money of money and
adds complexities on monetary policies in an economy.

During inflation, the bank developed and adopt new lending techniques as a
result of unstable economy.

Inflation has a significant effect on financial record and bank staff because it
reduce the value of interest.

The repayment period given to customers to repay their loan is favourable to the
borrowers.

5.3 CONCLUSION

Commercial banks remain eliminate in the banking system in terms of their

shares of total assets and deposits liabilities, their total loans and advances a major
constraint posted by government regulations institutional constraints and other
macrocosmic factors.

However, both government and commercial banks should be mindful of the fact
that the environment in which they operate are important factor in the bank
performance and behavior. Where the environment is conducive and supportive
performance suffers. Commercial banks should note that they need to do a lot in
order to ensure good lending behavior even when a good measure of macro-economic
stability is achieved. Therefore effort should be made by commercial banks.

In conclusion, it is imperative to note that one of the most serious problems

confronting different economic around the globe in recent years is inflation as
defined is a persistent rise in the average level of price of all goods and services more
so, depreciation provisions are base on the original cost of assets not in current
inflation value.

38
 From the analysis and review of the research, the researcher found out that
excess spending by the government should be checked to reduce the level of
inflation.

5.4 RECOMMENDATION

The researcher has the following recommendations to make:

a. The bank should embark on proper interview and the employment of some
expatriate who will ascertain the issue of bank lending and advances to
customers.
b. The central bank should set strong committee on supervision of central bank
guidelines with regards to cash ratio, special deposit and the exchange rate.
c. The subsidy of the price of essential commodities should be reduced and
encouragement of exportation.
d. The economy to revamped to reveal the present trend, strengthening the value
of the naira and reduce importation of manufactured goods or stabilization of
price of some commodities.
e. Reduction of pressure on the external sector so as to achieve a sustainable
balance of payment positions.
f. Moderation of the rate of inflation.
g. The bank should make provision for bad debt through recovery procedures in
saving doubtful debts.

5.5 SUGGESTION/NEED FOR FURTHER RESEARCH

The researcher was not able to carry out the research as expected due to some
constraints this include: finance, time, inaccessibility to data, therefore, the researcher
wish to suggest that future researchers should focus on a research on;

39
 The impact of lending in commercial banks
Further research can be carried out on the effect of inflation in development
of finance institutions, lending to the real sectors of the economy. This will
go a long way in giving a better understanding of the subject matter.

40
 BIBLIOGRAPHY

Adedoyin & Sobodun (1991), Commercial Bank Lending in Nigeria. Nigerian

Financial Review, 5.9 (3) Pp. 36-37.

Adekanye, F. (1986). Element of Banking in Nigeria. 3 rd Edition. FXA Publishers

Ltd, Lagos Pp. 130-138.

Alwankwo, G.O (2000) Organization For Financial Risk Management

Bereh, N.M (2010) A Practical Guide to Research Writing Jos Professional Tutors
Consults, Jos

Eguzoikpe, E.E (2003). Research Methodology, A practical Treaties for Students;

FON Nigeria Ltd Jos.

Eguzoikpe, E.E. (2008), Research Methodology, a Practical Treatise for Students. 2nd
Edition. Jos Quality Function Publishers.

Hudsion, J. (1982) Inflation, a Theoretical Survey and Survey synthesis, George

Allen and Union Publishers, London, P.1

Jhingon, M.L (2001) Monetary Economics, 5th Edition. Vrinda Publication ltd Delhi,
India P232.

Lipsey, R.G (1989). An Introduction to Positive Economics, ELDS/Weidenfield and

Nicolson Ltd London Pp. 40

Osuala, E.C (1982). Introduction to research Methodology, African Federal.

Publishers Ltd, Onitsha, Nigeria.

Olusola, A.J (1998). The Preparation and Presentation of Research Project. Jos.
Planning research publication PP.13

41
Ojo, J.A.T (1999) Roles and Failures of Financial Intermediation by Bank. CBN
Bulletin, 22 (2) P10.

Osayameh, R. (1991) Lending & Credit Administration Mode for Commercial

Banks Nigerian Financial Review 4(2) Pp 55-60

Stredzer, A.C et al (1976) Information Management, J. Willey and Sons, New York
P. 179

Usman (1976) Bank Regulations and Supervision in Nigeria the Nigerian Banks Pp.
79.

Wood, F & Omaya, J.O (1982) Business accounting 1:Longman House, Burnt Mill,
Harlow, England. P. 10

42
 APPENDIX A

Department of Banking and

Finance,
School of Administration and
Business Studies,
Plateau State Polytechnic
Barkin Ladi,
P.M.B 02023
Plateau State.
November, 2016

The Manager,
U.B.A
Jos main Branch.
Plateau state.
Dear Sir,
REQUEST FOR INFORMATION

I am a final year student of the above institution I am currently conducting a

research on the topic An Evaluation of the effect of Inflation on Bank Lending in
Nigeria using your bank as a case study, I am therefore soliciting for your assistance
in completing the attached questionnaires.

Be assured that any information obtained will be treated strictly as confidential

and used for this research only.

Thank you in anticipation for your cooperation.

Yours Faithfully,

Onwubuya Cynthia Nwuya

43
 APPENDIX B

Section A
Profile:
Gender: Male ( ) Female ( )
Category: Bank Staff ( ) Customer ( )
Section B
Please tick the boxes that best expressed your opinion.
For bank staff only
1. Does inflation have any effect on bank lending? Yes ( ) No ( ) No Idea ( )
2. Does your organization have any need to develop or adopt new lending
techniques due to inflation? Yes ( ) No ( ) No Idea ( )
3. Are you of the opinion that inflation reduces value of interest rate on bank
lending? Yes ( ) No ( ) No Idea ( )
4. Would you say that inflation have significant effect on financial record?
Yes ( ) No ( ) No Idea ( )
5. Would you say that inflation have significant effect on bank staff?
Yes ( ) No ( ) No Idea ( )
6. Does the banking sector perform better in time of inflationary period?
Yes ( ) No ( ) No Idea ( )
7. Will you subscribe to the opinion that inflation leads to unemployment?
Yes ( ) No ( ) No Idea ( )
8. Does inflation encourage savings? Yes ( ) No ( ) No Idea ( )
9. Does the bank face challenges when giving out loan? Yes ( ) No ( )
No Idea ( )
10.What challenges does the bank face when obtaining back the loan?

44
 ....................................................................................................................................
...........................................................................
For customers only
1. What discourages the customer from obtaining loan?


2. Is the repayment of loan favorable to the customer? Yes ( ) No ( )
No Idea ( )
3. Are loans given to beneficiaries during inflation fully utilized? Yes ( )
No ( ) No Idea ( )
4. Must loans and advances granted be accompanied by collateral?
Yes ( ) No ( ) No Idea ( )
5. Has government respond in respect to inflation? Yes ( ) No ( ) No Idea ( )

45