Monetary Policy and Bank Performance in Nigeria.

Abstract:

This study examines the impact of monetary policy on bank performance in Nigeria, using a data sourced from CBN statistical bulletin which spans between 2010 and 2023, with a specific focus on the relationship between the monetary policy tools and return on assets (ROA). Using Auto Regressive Distributed Lag (ARDL) regression analysis, the study tests three hypotheses to determine whether monetary policy tools are significantly influences bank’s performance (ROA). The results indicated insignificant positive relationship between inflation rate, interest rate and ROA, suggesting that changes in the central bank’s interest rate directly affect bank’s performance. Also, there is no significant relationship found between cash reserve ratio and ROA, implying that other factors, such as regulatory frameworks, operational efficiency, macroeconomic stability, and inflation rate volatility, play a more dominant role in determining bank’s performance. Based on these insights, the study recommends that the CBN consider the impact of monetary policy on bank performance when setting monetary policy rate, while financial institutions should enhance their interest rate management strategies. Future researchers should explore additional macroeconomic variables, such as exchange rate movements and GDP growth, to provide a more comprehensive understanding of bank performance determinants.