ABSTRACT
This study examines the
influence of monetary policy variables on the performance of Deposit Money
Banks (DMBs) in Nigeria. Using an ex post facto research design, secondary data
sourced from financial statements and reports are analyzed employing the Ordinary
Least Square (OLS) method of multiple regression. The sample population focuses
on United Bank of Africa (UBA) financial statements, aiming to investigate the
effects of Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR), and Statutory
Liquidity Ratio (SLR) on the Return on Assets (ROA) of DMBs.
The findings reveal
significant relationships between monetary policy variables and DMBs
performance. MPR exhibits a negative yet significant impact on DMBs
performance, suggesting that existing monetary policies may not adequately
promote growth within the banking sector. Conversely, CRR demonstrates a
positive and significant effect on DMBs performance, indicating the importance
of liquidity management for bank profitability. However, SLR shows a positive but
non-significant effect on DMBs performance, implying a need for moderation in
its application as a regulatory tool.
Overall, the regression
analysis underscores the statistical significance of the joint influence of
MPR, CRR, and SLR on DMBs performance, emphasizing the pivotal role of monetary
policy in shaping the banking sector's dynamics. The study's conclusion
underscores the necessity for effective monetary policies tailored to enhance
the efficiency and stability of financial intermediation in Nigeria.
Based on the empirical
findings, several recommendations are proposed. Firstly, the Central Bank of
Nigeria (CBN) should consider moderating SLR as a regulatory tool to optimize
DMBs operations. Secondly, there is a call for the creation and implementation
of flexible monetary policies that foster efficient financial intermediation
while ensuring stability. Additionally, continuous enforcement of effective
monetary policies to sustain economic agents' confidence and patronage is
advised. It is also suggested to maintain an optimal level of CRR to leverage
its positive impact on DMBs performance. Lastly, reducing MPR is recommended to
prevent adverse effects on banks' viability and to stimulate economic
activities.
In essence, this study
contributes to the discourse on the nexus between monetary policy variables and
DMBs performance in Nigeria, providing insights for policymakers and
stakeholders to optimize monetary policy frameworks for sustained growth and
stability within the banking sector.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions.
1.5 Hypotheses
1.6 Scope of the Study.
1.7 Limitations of the Study.
1.8 Significance of the Study
1.9 Definition of Terms.
CHARTER TWO
LITERATURE REVIEW
2.1 Conceptual Framework
2.1.1 Development of Monetary Policy in
Nigeria
2.1.2 The Concept of Monetary Policy
2.1.3 Objectives of Monetary Policy.
2.1.4 Instruments of Monetary Policy
2.1.5 Types of Monetary Policy.
2.1.6 Rationale for Using Monetary Policy.
2.1.7 Problems of Monetary Policy Implementation
2.1.8 Monetary Policy Variables
and Deposit Money Banks Performance.
2.2 Theoretical Framework
2.2.1 The Classical Monetary Theory
2.2.2 Anticipated Income Theory
2.2.3 Liability Management Theory
2.2.4 Shiftability Theory
2.2.5 The Keynesian Theory
2.3 Empirical Review
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Research Design
3.2 Study of Population and Sample Size
3.3 Data Collection and Instruments
3.4 Procedure for Data Collection and Research Instrument
3.5 Validity of the Instrument
3.6 Reliability of the Instrument
3.7 Model Specification
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF
RESULT
4.1 Data
Presentation
4.2 Regression Analysis/Interpretation of Result
4.3 Test of Hypotheses
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS.
5.1 Summary
of Findings
5.2 Conclusion
5.3 Recommendations
REFERENCES
CHAPTER ONE
INTRODUCTION
1.1 Background to the
Study
Monetary policy remains a critical tool in stimulating
the growth and stability of financial institution in most developing economies.
In Nigeria, the objectives of monetary policy usually include promoting
monetary stability, strengthening the external sector performance and on
generating a sound financial system that will support increased output and
employment. The central Bank of Nigeria (CBN) over the years has been rolling
out pragmatic monetary policies at ensuring policy stability.
Monetary policy is the process by which the monetary authorities
of a country control the supply of money. It is referred to as the combination
of discretionary measures designed to regulate and control the supply of money
in an economy by the monetary authorities with a view to achieving desired macroeconomic
goals and generally promoting economic growth, development and stability. Onoh (2004), stated that
"Monetary policy is designed to influence the behaviour of the monetary sector."
This is because the behaviour of the monetary sector influences various monetary
variables or aggregates. In effect, monetary policy affects the level of money
supply at any point in time either by expanding it or through its contraction.
In addition to this effect, monetary policy also
influences the level of and structure of interest rates and thus, cost of funds
in the market depending on the prevailing economic conditions. Monetary policy
is used by the monetary authority with the aim of controlling and regulating
the activities of banks and other non-bank financial institutions who are
active participants in the economy.
The interest channel of monetary transmission
mechanism emphasizes that the change in monetary policy will first affect the banks’
lending rates and its short term interest rates. Next, this changes evolve to
long term interest rates that then affects business investment and consumer
spending. Commercial banks, on the other hand, play a vital role in the
financial system because they are capable of influencing credit creation in the
market.
The effect of monetary policy on the returns of
commercial banks are sensitive to banks specific characteristics such as
leverage, profitability, size and these vary in different economic conditions.
According to Ariyo and Adeleyan (2005), "this is due to monetary policy's
effect on banks discount rate and expected cash flows".
As an important tool of macroeconomic control and
regulation, monetary policy entails an extensive, otherwise wide range of
activities, stipulation and evaluation of variables, tools and methods and
procedures of implementation and would facilitate the achievement of the
specific and broad economic objective of the nation.
As a matter of fact, for any economy to grow develop
and be stable there is absolute need for the effective and efficient management
or coordination of the monetary resources through the highest monetary
authority, the central bank of the nation, in regards establishment of the
policy framework, and the need for financial intermediaries like commercial
banks. (Osayameh, 1986).
Monetary policy therefore becomes an indispensable
means of checking macroeconomic fluctuations to some degree of stability and
confidence and attain desired macroeconomic objective.
1.2 Statement of the Problem
Commercial banks are institutions that handle the
money stock of the country. By virtue of the nature of their services, the
general public including corporations and various tiers of the government place
a measurable level of confidence on commercial banks than any other financial
intermediary. However, such confidence sometimes gets destroyed by poor
performance from some of the commercial banks. Considering the problems
experienced by these commercial banks in the past years, it was noticed that
the monetary policy measures and variables was meant to affect the entire liquidity
rate of commercial banks. Despite the efforts made by monetary authorities in
Nigeria to achieve macroeconomic policy measures has not fully stimulated the
performance and deposit mobilization for their better performance.
1.3 Objectives of the Study
The main objective of the
study is to evaluate the effects of monetary policy variables and their
implementations on Deposit Money Banks performance in Nigeria.
While the specific objectives
include the following:
1.
To determine the effects of Monetary Policy rate on the
performance of Deposit Money Banks in Nigeria.
2.
To examine the effects of Cash Reserve Ratio on the
performance of Deposit Money Banks in Nigeria.
3.
To evaluate the effects of Statutory Liquidity Ratio on the
performance of Deposit Money Banks in Nigeria.
1.4 Research Questions.
This study answered the following questions:
1. How does Monetary Policy Rate
affect the performance of Deposit Money Banks in Nigeria?
2. To what extent has Cash
Reserve Ratio affected the performance of Deposit Money Banks in Nigeria?
3. How does Statutory Liquidity Ratio affect the performance of Deposit
Money Banks in Nigeria?
1.5 Hypotheses
The null hypotheses
formulated for this study are presented below.
Ho1: Monetary Policy
Rate has no significant effect on the performance of Deposit Money Banks in Nigeria
Ho2: Cash
Reserve Ratio has no significant effect on the performance of Deposit Money Banks
in Nigeria.
Ho3: Statutory
Liquidity Ratio has no significant effect on the performance of
Deposit Money
Banks in Nigeria.
1.6 Scope of the Study.
This research work would cover the effects monetary
policy variables have on the performance of commercial banks in Nigeria from 2000-2014.
1.7 Limitations of the Study.
This research work faces some limitations arising from
the following reasons.
1. Time Constraints: A research work of this
nature is supposed to last for a year or
more but the researcher was able to pay appropriate attention to the work in spite of the limited time.
2. Financial Constraints: Finance is the major
limitation of the work but the researcher utilized the available funds and
resources in order to produce the best
required of the work.
1.8 Significance of the Study
This work and its sections and subsections in several
ways would be relevant to the following stakeholders:
1.
To policy makers and monetary authorities such as the Central
Bank of Nigeria and the Nigeria Deposit Insurance Corporation, in formulating
and implementing monetary policy goals especially as it relates to commercial banks'
performance in Nigeria.
2.
To other researchers and or professionals in carrying out
research or related issues. This comes from the reference provided in the work.
1.9 Definition: of Terms.
1.
Monetary Policy: This is a policy which uses a set of guidelines to
control the monetary supply within the economy by the monetary authorities.
2.
Commercial Banks: These are those banks who engage in
the business of accepting Deposit withdraw able by cheque. They are the
suppliers of business finance in Nigeria.
3.
Interest Rate: This is the specific sum that has to be paid for
money borrowed. It is the cost of holding money borrowed and it differs
according to the market in which money was borrowed.
4. Liquidity: This means each or any
asset that can be easily converted to cash.
5.
Monetary Policy Variables/instruments: These are those tools
which are under the control of the Central Bank for the use in achieving
monetary policy targets.
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