Nigerian Journal of Banking and Financial Issues (NJBFI)

MONETARY POLICY AND GROWTH PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The study examines the influence of monetary policy and the growth performance of Deposit Money Banks in Nigeria over the period 2010 - 2024 using Vector Error Correction (VEC) Model estimation techniques. The findings revealed that the lag of MPR and INF has a positive long-run relationship with ROA. Specifically, a positive shock to DMB's financial growth performance with MPR and INF has a significant effect.

Equally, CRR, SLR, TBR and EXR were found to have exerted a long-run inverse influence on financial growth performance and long-run decline in ROA at 5% level of significance. The adverse shock CRR, SLR, TBR, and EXR have a statistically non-meaningful influence on the DMB's financial performance. However, the Naira exchange rate affects bank performance in the long run due to the influence of cryptocurrency and Dollar speculation.

The Error correction term (ECT) introduced established that the error in the long run model is being corrected at 52% (approximately) annually. The two control variables - exchange rate (EXR) and inflation (INF) have a weighty short-run adverse relationship with return on asset (ROA). Importantly, the study found that the government should ensure a stable monetary policy rate to improve banks' profitability through lending at a more competitive interest rate.