The effect of reserve requirement ratios on financial performance of commercial banks in Nigeria

Abstract

This paper examined the relationship between reserve requirement ratios and financial performance of commercial banks in Nigeria. The study was anchored on Keynesian theory, Bank Lending Channel, Agency Theory and employed causal research design. The Nigerian banking populace is 21 commercial banks thus, census approach was adopted. Panel data was utilized and inferential statistical methods were used to analyze the data. The result of regression analysis showed that reserve requirement ratios had a coefficient of β = 76.57011, ***p = 0.000 implying that it had positive and significant effect on the earning performance of commercial banks in Nigeria. The results also show that monetary policy reforms had a coefficient of β=3.031763, ***p=0.002 indicating it has positively and significantly intervened on the relationship between reserve requirement ratios and financial performance of commercial banks in Nigeria a most distinctive finding of the study. The study concluded that reserve requirement ratios as adopted by Central Bank of Nigeria is critical and heavily influenced the performance of banking sector players in Nigeria. The study recommends that Central Bank of Nigeria should be meticulous and involve management of commercial banks when designing policy instruments to enhance the earnings of the commercial banks in Nigeria.