EFFECT OF MONETARY POLICY ON BANK’S PERFORMANCE IN NIGERIA

ABSTRACT This study examined the effect of monetary policy on deposit money banks performance in Nigeria. The study proxied the independent variable with three variables namely; monetary policy rate, liquidity rate and cash reserve ratio while the dependent variable was proxied with deposit money banks’ returns on asset. The data used were secondary time series data for the period 2010 to 2022. The data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin. The relationship between the dependent and independents variables were estimated using ordinary least square (OLS) regression model. The results of the study indicated that cash reserve ratio and liquidity ratio maintained positive relationship with the bank performance in Nigeria while, monetary policy rate maintained negative relationship. Specifically, monetary policy rate with negative a coefficient and p-value of 0.0080, has significant negative effect on bank performance in Nigeria. While liquidity ratio has a p-value of 0.0262 with a positive coefficient has an insignificant positive effect on Nigerian bank performance. Similarly, with p-value of 0.0000, cash reserve ratio has positive and significant effect on Nigerian bank performance. Based on the findings above, the study concluded that monetary policy has negative and significant effect on banks performance in Nigeria within the period under review. Thus, the study recommended that as a result of negative and significant relationship between monetary policy rate and banks performance, the monetary authorities especially the Central Bank of Nigeria should work towards significant reduction in the monetary policy rate and possibly towards one single digit rate. Keywords: Liquidity, Cash, Performance, Monetary, Banks.