Monetary Policy and Banking Sector Performance: Evidence from Deposit Money Banks in Nigeria

Abstract

This study investigated the impact of monetary policy on the performance of deposit money banks (DMBs) in Nigeria. It specifically examined the relationship between Cash Reserve ratio (CARR), Liquidity ratio (LQR), Monetary Policy Rate (MPR) and Treasury bills (TRB) which are monetary policy instruments, and banks’ performance indicators of return on assets (ROA). Data were collected from Central bank of Nigeria Statistical Bulletin of 2023 and NDIC publications spanning from 1990 to 2023. The Analysis were carried out using Ordinary Least Squares, Cointegration and Error correction model (ECM) were adopted for further analysis. The OLS results show that TBR, MPR and CARR insignificant relationship with ROA. From the foregoing, it was observed that monetary policy instruments have no significant impact on the financial performance of deposit money banks in Nigeria for the period of study. The study therefore recommended that monetary policy instruments in Nigeria be regulated and moderated by the government in a way that they do impact on the profitability of the banks.