Monetary Policy and Profitability of Deposit Money Banks in Nigeria

Abstract

Purpose

The significance of banking sectors for economic development, in every economy, cannot be overemphasized. This research investigates how monetary policy impacts the profitability of deposit-taking banks in Nigeria.

Methodology

The study employs an approach based on a static panel data estimator and the Dumitrescu and Hurlin panel causality tests to evaluate the defined objectives. The study's data spanning 2012 to 2022, was obtained from the yearly reports of the chosen banks and Central Bank Statistical Bulletin.

Findings

The study revealed that monetary policy rates are a key factor influencing return on equity among banks in Nigeria at 1% level of significance. Furthermore, this research found the cash reserve ratio to be a significant factor influencing return on assets across banks in Nigeria at 5% level of significance. It was determined that monetary policy is a significant determinant of the profitability of banks in Nigeria.

Conclusions

This study extends evidence to examine how monetary policy impacts the profitability of deposit-taking banks in Nigeria. Amongst others, the research suggests that the central bank's administration of monetary policy be flexible, allowing deposit-taking banks to perform their duties effectively to the public.