Nigerian Journal of Banking and Financial Issues (NJBFI)

LIQUIDITY, CASH RATIO, AND NET INTEREST MARGIN NEXUS AND THEIR EFFECTS ON DEPOSIT MONEY BANKS' PERFORMANCE IN NIGERIA

Abstract

This study analysed the effects of monetary policy tools - liquidity ratio and cash reserve ratio (CRR) - on the performance of deposit money banks in Nigeria from 2012 to 2021. Using ex-post facto design and secondary data from Central Bank of Nigeria, the research found that while changes in the liquidity ratio did not significantly affect net interest margin (NIM), an increase in the CRR positively impacted net profit margin. These findings support Central Bank's use of CRR to control liquidity. It is recommended that the Central Bank maintain its cash reserve policy and that banks reduce their excess liquidity holdings, as these yield lower returns.