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Monetary Policy and Financial Performance of Deposit Money Banks in Nigeria

Author

Listed:
  • Yimka S. A. Alalade
  • Ezekiel Oseni
  • Olusegun A. Adekunle

Abstract

This study considered the influence of monetary policy on the financial performance of deposit money banks in Nigeria. The study engaged the use of a time series data for 35 years, from the period 1984 to 2018; all deposit money banks as captured by the Central Bank of Nigeria Statistical Bulletin (2015) were considered. The effect of liquidity ratio, lending rate, loan to deposit ratio and cash reserve ratio were examined on the financial performance of deposit money banks measured by their net worth and total credits. The data was analyzed using descriptive and inferential statistics. Based on the result of stationarity test, the ordinary least square method and the Autoregressive Distributed Lag method were employed. A short run model of net worth and long run model for both the log of net worth and the log of total credits were estimated. The results revealed that the mean of net worth and total credits are 5455.27 and 79608.63 respectively. In the long run, monetary policy variables including liquidity ratio, lending rate, loans to deposit ratio and cash reserve ratio had no significant effect on the log of net worth. However in the short run, variations in the liquidity ratio, loans to deposit ratio and the cash reserve ratio for previous years had significant effect on the log of net worth in the current year. When financial performance is measured as total credits, the liquidity ratio and loans to deposit ratio had positive significant effect in the long run. The cash reserve ratio had a negative significant effect in the long run. The log of lending rate was insignificant in both the long and short run. The study concluded that monetary policy significantly explains the financial performance of deposit money banks both in the short and long run.

Suggested Citation

  • 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.
    • Handle: RePEc:ibn:assjnl:v:16:y:2020:i:11:p:123
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    References listed on IDEAS

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    1. UFOEZE, Lawrence Olisaemeka, 2018. "Effect Of Monetary Policy On Economic Growth In Nigeria: An Empirical Investigation," Annals of Spiru Haret University, Economic Series, Universitatea Spiru Haret, vol. 9(1), pages 123-140.
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    Cited by:

    1. 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.

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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