Effect of Monetary Policy on Performance of Deposit Money Banks in Nigeria

Vollständiger Abstract

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This study investigates the effect of monetary policy on performance of deposit money banks in Nigeria over the period 1990 to 2023, utilizing time series data sourced from the CBN Statistical Bulletin and the World Bank. The dependent variable is return on assets, while the logarithm of broad money supply, real interest rates, and liquidity ratio served as the independent variables. The analytical methods employed include descriptive statistics, ADF unit root tests, ARDL bounds cointegration, the ARDL estimation method, and post-estimation diagnostic tests. The ADF unit root results reveal mixture of order I(1) and I(0) series. The ARDL long run results show that the logarithm of broad money supply exerts a negative but statistically marginally significant effect on return on assets; real interest rate reveals a positive but statistically not significant effect on return on assets; and liquidity ratio shows a negative but not statistically significant effect on return on assets. Based on these findings, the study recommends among others that to bolster bank profitability, the government should implement stringent controls on M2 growth, using targeted monetary policy tools to curb excessive liquidity that risks inflationary pressures or diminished interest margins, thereby safeguarding ROA.