Monetary policy and performance of deposit money banks in Nigeria

Abstract

This research examines the impact of monetary policy interventions on the performance of deposit money banks in Nigeria from 1990 to 2022. Monetary policy indicators—cash reserve ratio, monetary policy rate, lending interest rate, and wide money supply—served as proxies, while profit after tax was utilised to evaluate bank performance. The Augmented Dickey-Fuller Unit Root Test and the Auto-Regressive Distributed Lag (ARDL) model were utilised to guarantee data dependability and correctness. The research was owing to secondary data from the Central Bank of Nigeria's 2022 statistical bulletin. The upshots demonstrated a long-term association between monetary policy and bank performance, as validated by the bound test. The cash reserve ratio shown a favorable short-term effect on profit after tax, but the monetary policy rate revealed a positive and substantial influence in both the short and long term. Lending interest rates shown a negative and substantial correlation with bank performance, whereas the broad money supply had a negative but substantial influence on profitability. The report argued that monetary policy is crucial in influencing the profitability of deposit money institutions in Nigeria. The CBN is advised to either maintain or make minor modifications to the cash reserve ratio to promote ongoing profitability and financial stability within the banking sector. This research offers essential information for policymakers, banking entities, and financial experts.