Effect Of Monetary Policy On The Performance Of Deposit Money Banks In Nigeria
Umukoro, God’spower
Department of Banking and finance, Joseph sarwuan tarka university, Makurdi.
Tyona Timothy
Department of Banking and finance, Joseph sarwuan tarka university, Makurdi.
Yua Henry
Department of Banking and finance, Federal Polytechnic wannune
Keywords: Monetary Policy, Deposit Money Banks, Bank Performance, Cash Reserve Ratio, Lending Rate
Abstract
This study examined the effect of monetary policy on the performance of deposit money banks in Nigeria from 1992 to 2023. The main objective of this study was to examine the effect of policy instruments on the performance of the deposit money banks. Banks’ performance was proxy by gross total assets, while the policy variables are cash reserve ratio, liquidity ratio and maximum lending rate. Data was sourced from Central Bank of Nigeria Statistical Bulletin. The ordinary least square (OLS) was used for the analysis where results revealed that CRR with the coefficient -0.230962 and probability value of 0.3418 and LQR with coefficient -0.237453 and probability value of 0.7977 indicate that both had inverse relationship with bank performance since the probability values are greater than the five percent level of significance at 0.050 while MLR with the coefficient 0.109496 and probability value of 0.050 indicate a positive relationship with bank performance since the probability value 0.050 is within the five percent level of significance. The findings show that higher CRR reduces funds available for lending, excess liquidity reduces banks’ income generating capacity and higher lending rates increases banks’ interest income. The study recommends among others that the monetary authorities should keep the cash reserve ratio stable over a period of time and bank should efficiently manage liquidity.