Pages: (57-78 )
Abstract
The potential impact of monetary policy on economic activities generally and banking sector performance in particular, is diverse. This study empirically examined the relationship between monetary policy instruments and the financial performance of deposit money banks in Nigeria using the static panel data approach for the period 2011-2020. The study revealed that monetary policy rate has significant effect on banks financial performance in Nigeria. This study adopted an ex-post facto research design. The study employed static panel regression analysis with emphasis on pooled, fixed effect model and random effect model. Secondary data was sourced from the annual reports of the 10 selected Nigeria quoted banks. The Hausman test was used to justify the appropriate model and inferences were made at 5 percent significant level. The study findings showed that while cash reserve ratio (CRR) was positive and significant effect on return on asset (ROA), liquidity ratio (LR) was positive and insignificant on return on asset, and monetary policy rate has a positive but insignificant effect on return on assets at 1% significance level. The study concluded that monetary policy rate has significant effect on banks financial performance in Nigeria.Based on the findings, the study recommends that the relevant monetary authorities should apply with caution monetary policy variables to significantly influence deposit money banks loans and advances. Expansionary monetary policy should be adopted by the CBN to force down interest rate and increase money supply because a fall in the bank rate will reduce interest on loans made by deposit money banks.
Keywords: Cash reserves ratio, Financial performance, Liquidity ratio, Monetary policy rate.,