MONETARY POLICY AND DEPOSIT MONEY BANKS IN NIGERIA

ABSTRACT

This study examined monetary policy and deposit money banks in Nigeria. The objectives of the study were to examine the relationship between liquidity ratio and deposit money banks in Nigeria; determine the impact of lending rate on deposit money banks in Nigeria; ascertain the relationship between loan and deposit ratio on deposit money banks in Nigeria and to determine the relationship between cash reserve ratio and deposit money banks in Nigeria. For this study the secondary method of data collection was employed in amassing data for the period of 7 years (2012 to 2018) considered as the scope. The secondary data collected include all deposit money banks as captured by the Central Bank of Nigeria Statistical Bulletin will be considered. The data collected for this study were analysed by running a multiple regression using the E-view software technique. The findings from the analysis revealed that liquidity ratio showed a negative and significant relationship with financial performance; lending rate showed a negative but significant relationship with financial performance; loans of deposit ratio showed a positive and significant relationship with financial performance, and cash reserve ratio showed a negative and significant relationship with financial performance. Based on the findings of this study, it was recommended that increases in the liquidity ratio in the current year be made by the Central banks of Nigeria towards improving the financial performance of deposit money banks for future year, the loans to deposit ratio should be reviewed upward in order to improve the financial performance of deposit money banks in the current years and for the future year, reduction in the cash reserve ratio is necessary for improvements in the financial performance of deposit money banks in the current and future years, the CBN should intensifies its monetary policy strategies in controlling the activities of money deposit banks in the short run as this policy has been found effective. However, in the long run, CBN should make use of other regulatory tools to control the activities of deposit money banks. It is also recommended that deposit money banks’ management should try to boost their net interest margin through effective management of their deposits mobilisation and loans portfolio strategies as these will result in better performance, that is, increase in profit before tax of the banks.