EFFECT OF INTEREST RATE ON PROFITABILITY OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

This study examined the effect of interest rate components Lending Rate (LR), Monetary Policy Rate (MPR), and Treasury Bill Rate (TBR) on the profitability of listed Deposit Money Banks (DMBs) in Nigeria. The study was motivated by the persistent instability in Nigeria’s interest rate environment and the inconsistent findings of previous empirical studies. An ex-post facto research design was adopted, and secondary data covering a 10-year period were obtained from the Central Bank of Nigeria Statistical Bulletin and the Nigerian Stock Exchange. Profitability was measured using Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). Descriptive statistics, correlation analysis, and multiple regression techniques were applied, with diagnostic tests conducted to validate model reliability. The results revealed that interest rate components (LR, MPR, and TBR) have no statistically significant effect on the profitability of listed DMBs in Nigeria. While the coefficients of LR showed a consistently negative but insignificant relationship with profitability, both MPR and TBR demonstrated weak and insignificant positive effects across all profitability measures. Furthermore, correlation results indicated only weak associations between interest rate variables and profitability indicators. Diagnostic tests confirmed the absence of multicollinearity, heteroskedasticity, and non-normality of residuals, validating the robustness of the estimations. The study concludes that interest rate dynamics play a limited role in determining bank profitability in Nigeria, suggesting that bank performance is driven more by internal operational efficiency, asset quality management, income diversification, and risk management practices than by prevailing interest rate conditions.