Citation:

Dr. Suka L. C Adamgbo, Clinton N. Osuagwu, Dr. Juliet I. Kenn-Ndubuisi. "The Influence of Monetary Policy on Financial Performance of Commercial Banks in Nigeria: Monetarist Ideology; Focus on Instruments Directly Under CBN Control" International Research Journal of Economics and Management Studies, Vol. 3, No. 7, pp. 203-219, 2024.

Abstract:

This study is underpinned by the monetarist ideology as it focuses on the influence of monetary policy on the financial performance of 21 commercial banks that operate in Nigeria. The study used LQR, CRR, INR, LDR, and TBR as monetary policy measures, while banks' performance indicators include ROA, ROE and NPM as our independent and dependent variables, respectively. The study is time series based-covering the periods 1990 to 2022. The data relied on was compiled by the Nigerian Exchange Group Limited on the bank's financial performance and publication of CBN on monetary policy reserve requirements. The study implored both the descriptive statistics and regression approach. Our major findings, from the descriptive statistics, all our independent variables relating to each of the three (3) dependent variables showed a normal distribution except LQR and INR. From the line graphs of the series, our results showed a random work with thrift as they move up and down. From the regression estimations, our first model indicates that all monetary policy parameters had negative and no significant influence on ROA except LDR and INR, which influenced and showed a positive linear relationship with ROA. In our second model, where ROE is the explained variable, the result indicates that only LDR and TBR significantly influenced ROE but with a negative link except LDR, while others did not but showed a negative linear relationship. From model three, our findings revealed that three (3) of our explanatory variables, LQR, INR and TBR, significantly influenced NPM on a negative note except INR, which correlates positively with NPM. Based on our findings, authors are of the view that the monetary authorities (CBN) should, as a matter of policy and in view of the prevailing economic trends, continue to review LQR, CRR, and TBR downward to favour Nigerian commercial banks as the present rates showed negative influence on ROA. On the other hand, LQR, INR and LDR had a negative link with ROE except INR; it is our opinion that operators of commercial banks in Nigeria give priority attention to working within the CBN cash reserves threshold, if possible, be above board considering their influenced and negative correlation with banks NPM. While we applaud CBN's recent punitive actions by debiting some commercial banks in Nigeria to the sum of N1.62 trillion for flouting the 32.5% cash reserve threshold, stiffer measures are recommended to coerce compliance and bring about the desired banking system stability and soundness in Nigeria.

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Keywords:

Monetary policy, Monetarist ideology, CBN liquidity requirements, Financial performance, profitability.