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Impact of Monetary Policy on the Performance of Commercial Banks: Evidence from Nigeria: 2008-2023

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  • Elizabeth Obiaje

    (Bingham University, Nasarawa state, Nigeria)

  • Richard Umeokwobi

    (Monetary Policy Department, Central Bank of Nigeria, Abuja, Nigeria)

Abstract

This paper investigates the impact of monetary policy on the performance of deposit money banks in Nigeria, using monthly data series spanning the period 2008 to 2023. Total private sector credit of deposit money banks was used to proxy the performance of deposit money banks while money supply, monetary policy rate, cash reserve ratio, and maximum interest rate were used as proxies for monetary policy. The Ex-post Facto research design was adopted in this study. Data on total private sector credit of deposit money banks, money supply, monetary policy rate, cash reserve ratio, and maximum interest rate were obtained from the Central Bank of Nigeria (CBN) Statistical bulletin. The hypotheses of this paper were tested using the Autoregressive Distributed Lag statistics. The findings disclosed that total private sector credit of deposit money banks has a significant relationship with money supply and maximum interest rate while cash reserve ratio and monetary policy rate has an insignificant relationship with total private sector credit of deposit money banks. The researchers recommended among other things that the monetary authorities should consider policies that enhance liquidity within the banking system. This can be achieved through open market operations, reducing the reserve requirements, or other mechanisms that increase the availability of funds in the economy as the money supply was found to be statistically significant. Also, it is crucial for monetary authorities to monitor and adjust the maximum interest rates to ensure they remain conducive to deposit growth. High lending rates may discourage borrowing and subsequently reduce deposits, while more favorable rates could encourage economic activity and deposit inflows.

Suggested Citation

  • Elizabeth Obiaje & Richard Umeokwobi, 2024. "Impact of Monetary Policy on the Performance of Commercial Banks: Evidence from Nigeria: 2008-2023," Financial Economics Letters, Anser Press, vol. 3(3), pages 25-35, September.
    • Handle: RePEc:bba:j00007:v:3:y:2024:i:3:p:25-35:d:365
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    References listed on IDEAS

    as
    1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    2. Yimka S. A. Alalade & Ezekiel Oseni & Olusegun A. Adekunle, 2020. "Monetary Policy and Financial Performance of Deposit Money Banks in Nigeria," Asian Social Science, Canadian Center of Science and Education, vol. 16(11), pages 123-123, November.
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