MONETARY POLICY AND PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

This study empirically investigates the effect of monetary policyon the performance of deposit money banks (DMBs) in Nigeria’s economy for the period of 1990 to 2021. The study is based on the quantity theory of money and for theachievement of its objectives liquidity ratio (LQR), cash reserve ratio (CRR), prime lending rate (PLR) and exchange rate (EXR) were used to proxy monetary policy which is the study’s explanatory variable. Also, banks’ performance being the dependent variable of the study was proxied with the ratio of their return on assets to gross domestic product (ROA/GDP). Secondary data sourced from the statistical bulletin of the Central Bank of Nigeria (CBN) were utilized in the study.Unit root test was carried out and the data were found to be stationary at levels (order 0) thereby necessitating the multiple regression (OLS) test. From the multiple regression (OLS) test, it was found that CRR have a positive and insignificant relationship with the ratio of banks’ ROA/GDP. EXR was observed to have a negative and significant relationship with the ratio of banks’ ROA/GDP. Also, while PLR was found to have a positive and insignificant relationship with ratio of banks’ ROA/GDP, LQR was observed to have a negative and significant relationship with the ratio of banks’ ROA/GDP. The coefficient of determination revealed that jointly, variations in the proxies of the independent variable accounted for 23.48% of changes in the dependent variable. From the Granger Causality test it was observed that causality only flowed from PLR to ratio of banks’ ROA/GDP. Therefore, no bi-directional causality was found among the variables. In furtherance, conclusions were drawn from the findings and the following recommendations were given; (i) government should reduce the stipulated cash reserve ratio (CRR) in order to boost credit expansion, (ii) deposit money banks (DMBs) should mobilize more deposits through effective marketing, (iii) deposit money banks (DMBs) should make their prime lending rates to be attractive to prime customers, etc