EFFECT OF MONETARY POLICY ON THE PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

1987- 2017

Abstract

This study examined the effect of monetary policy on banks performance in Nigeria. The
variables of monetary policy rate, liquidity ratio, broad money supply and interest rate were
regressed on return on equity (ROE) for the period of 30 years (1987- 2017). The study adopted
an ex-post facto research design because the data for the study are secondary data that already
existed. Econometric techniques, including Augmented Dicker Fuller and Philip Perron tests for
unit roots and Ordinary Least Square (OLS) were employed for the analysis. The result of the
study indicate that monetary policy rate, liquidity ratio and broad money supply have positive
and significant effect on return on equity (ROE) while interest rate has negative and
insignificant effect on return on equity (ROE) within the period under review. The study thus
concludes that monetary policy can be used to influence the performance of deposit money
banks in Nigeria. The study recommends that interest rate should be reduced to a single digit.
Bank management should ensure that capital is properly channeled to the productive sector of
the economy. The relevant monetary authorities should apply with caution monetary policy
variables to significantly influence commercial banks loans and advances. Expansionary
monetary policy should be adopted by the CBN to force down interest rate and increase money
supply because a fall in the bank rate will reduce interest on loans made by commercial banks.
This will encourage more customers to secure loans from their banks thereby, increasing
investment opportunities in the country, ceteris paribus.