THE EFFECT OF GOVERNMENT POLICY ON COMMERCIAL BANK LENDING ABILITY IN NIGERIA A CASE STUDY OF UNION BANK

BACKGROUND OF THE STUDY: The banking system in Nigeria has undergone radical changes during the  35 years since independence . Banking developed from an industry which in 1960. was dominated by a small number of foreign owned banks into, one in which public sector ownership predominated in 1970s and 1980s and in which Nigeria private investors have played an increasingly important role since the mid 1989’s  government polices had a major influence on developments in the banking industry. Extensive government intervention characterized financial sector policies beginning in the 1960s and intensifying in the 1970s, the objective of which was to influence resource allocation and promote indigenisation. Since 1987 financial sector reforms have been implemented, encompassing elements of liberalization and measure to enhance prudential regulation and tackle bank distress.

The effect of government polices on the commercial bank lending in Nigeria in the period since independence all examine how banks were affected by public ownership and polices of financial repression the reasons behind the growth of Local Private sector banks, to causes of the financing distress in the banking industry and the efficacy of financial reforms undertaken. We aim to explore two related issues first, that government control on financial markets. Public ownership of banks and the neglect of prudential  regulation as opposed to allocative regulation had detriment effects on the banking lending, especially in terms of the quality of banks loan portfolio. Efficiency and competition second, that the efficacy of financial liberalization and other financial sector reforms to enhance the efficiency of intermediation in banking market has been limited. In part because of the legacy of pre-reform intervention ion banking lending, which left large sections of the banking industry in financial distress, but also because some of the reforms were inappropriately sequenced and other were not implemented in a consist ant manner.

On the commercial banks. Although other financial institution have been set up in Nigeria including development finance institution  (DFIS),  insurance companies and plethora of finance houses, hire purchase companies and mortgage companies, banking dominates the financial and merchant banks together accounted for 85 percent of the total asset of the emerged during the 1980. Some of these banks were set up banks by state governments but the majority were stated by Nigeria private investors. The tensive growth of the local private banks was very rapid after 1986, particularly in merchant banking sector by 1992 there  were 66 commercial banks operating in Nigeria. Despite the growth of new entrants however the three largest banks have retained their dominance of banking market, accounting for 48 percent of the total deposits of the commercial banks while Afric bank accounts for a further 7 percent.