1.1 BACKGROUND OF STUDY BRIEF HISTORY OF UNION BANK NIG. PLC The history of Union Bank of Nigeria PLC started with the opening of he colonial bank offices in Lagos, Jos and Port Harcourt in 1917. In 1925, the bank was acquired by Bardays Bank DCn (Domiion Colonial and Overseas).  The bank developed and grew rapidly almost all parts of the country. In compliance with the directive of the government in 1968, that all companies (including banks) must be incorporated locally in Nigeria, Bardays banks DCO was incorporated in Nigeria in 1969 and its name was consequently change to Bardays Bank of Nigeria LTD with its registered head office at 40 marina, Lagos.  As a result of Nigeria enterprise promotion Degree of 1972 and 1977, the federal government of Nigeria acquired 52% of the bank’s share, leaving 40% to Bardays Bank international limited (now Bardays Bank PLC) while the remaining 8% was taken up by Nigeria public.  Bardays Bank PLC sold 50% of it’s remaining shares to Nigeria in 1979, thus reducing its equity holding to 20%. Following this development, the Banks name was changed to Union Bank of Nigeria Ltd to reflect the new ownership structure i.e Federal government of Nigeria 52% private Nigeria investors 28% and Bardays Bank 20% . With this new name, this Bank is now an indigenous bank no longer a subsidiary Bardays Bank PLC, although Bardays Bank PLC still officer technical and correspondent services as in the past.

1.2 STATEMENT OF THE PROBLEM  Since the introduction of market determined exchange rate via the SFEM in 1986, the main exchange rate has exhibited the feature of depreciation and instability negative effect on interest rate and continued depreciation of the naria in the FOREX market has had some adverse implication for interest rates and for commercial bank. It seems that the high interest rates resulting from the deregulation of exchanges rate has affected the profitability of these banks.  Besides, the depreciation of the Naira since 1986 raise the question as to what impact the interest rate policy has made on the Nigeria economy and the commercial banks.

1.3 OBJECTIVES OF THE STUDY  The objective of this study among other things include:  i. To examine the interest rate policy in Nigeria since 1986.  ii. To examine the factors affecting the interest rate in the economy.  iii. To determine the impact of the deregulatory of interest rates on the profitability of commercial bank.  iv. To identify the factors militating against sound interest rate policy should evolve.

1.4 RESEARCH QUESTIONS  The following questions are formulate for the purpose of this study;  i. What major development have occurred in interest rate policy in Nigeria since 1986 ?  ii. What factors influence the determination of interest rate in the Nigerian economy ? iii. What impact has the interest rate deregulation policy made on the profitability of commercial bank in Nigeria ?  iv. What factors militate against the effectiveness of interest policies in Nigeria ?  v. What impact has the interest rate deregulation made on the Nigerian economy generally ?

1.5 FORMULATION OF HYPOTHESIS  The following hypothesis are formulate to help achieve the purposes of this study : 1. H0: Deregulated interest rates have not adversely affected the profitability of Commercial Banks.  H1: Deregulated interest rates have adversely affected the profitability of commercial bank. 2. H0: There is no strong correction between the interest rate and the profit made by the bank.  H1: There is a strong correlation between the interest rate and the profit made by the bank.  3. H0: Instability in the macro – economy positively affects the effectiveness of the interest rate policy.  H1: Instability in the macro – economy adversely affected effectiveness of interest rate policy Nigeria.

1.6 SIGNIFICANCE OF THE STUDY  This study is significant in many respect. First it will review the various interest rate polices implemented by the Nigeria monetary authorities since 1986. This review is very vital as it will reveal the flows in the formulation and implementation of policies. This will therefore provide the basis of recommendations for a sound interest rate policy in the economy.  Secondly, individuals and economic agents will through this study understand the rationing function of interest rate in allocating limited supply of credit among the many competing demands for it. . Thirdly, the findings will serve as a guide to policy makes in the formulation of interest rate policy for the second development of the banking sector in particular and the economy in general.  The study will also be useful for academic purpose. It will serve as a data base for students who will carry out related studies in the future. Finally the research findings can provide the basis for future studies.

1.7 SCOPE AND LIMITATION OF THE STUDY  The scope of study course the impact of interest rate deregulation policy in Nigeria on bank within particular reference to commercial banks. In carrying out the study the researcher encountered some problems. First, there was the problem of getting adequate information needed for the study especially primary information. This is because of un –cooperative attitude of most of the staff of the Union Bank of Nigeria PLC. They considered the data and information demanded very confidential and so could not disclose them so much year of official; reprisal.  Lack of finance also constrained the efforts of the researcher to make the study very expanded to include more commercial banks. Finally, there is the problem of limited time to carry out study. Because of the demand placed on the researcher by other academic work, she did not have ample time to carry out the study.

1.8 DEFINITION OF TERMS  Definition of some concepts is necessary here for more understanding .  MINIMUM REDISCOUNT RATE This is the amount charged by the central Bank of Nigeria for lending to bank in the performance of its function of a lender of last resort.  SAVING DEPOSIT RATE  This is the amount paid by bank for funds withdrawal after Seven days notice. This restriction is however seldomly applied.  DEREGULATED INTEREST RATE  This is the interest rate that is market oriented  FIXED DEPOSIT RATE  This is the interest paid on deposits made for a fixed period of time like 9 or 180 days.  MAXIMUM LENDING RATE  This refers to the rate changed by banks for lending to customers with a low credit rating  REAL INTEREST RATE  This is the nominal interest rate adjusted for expected inflation.  NOMINAL INTEREST RATE  This is the pure real value paid for the use of money or credit. It is often expressed as a percentage per annul . PRIME LENDING RATE  This is the interest rate applied to loans made to customers with the highest rating for each bank. This rate should also represent the minimum lending rate.  INTER – BANK INTEREST RATE  This is a stipulated interest rate of the government though the Central Bank of Nigeria (CBN) to bank in regard to lending and borrowing funds.