EFFECT OF MONETARY POLICY ON DEPOSIT MONEY BANKS PROFITABILITY IN NIGERIA

Abstract

This study investigated the effects of monetary policy on the profitability of deposit money banks in Nigeria for a period of ten (10) years spanning 2008 to 2017. A systematic collation of time series and cross-sectional data pooled into a panel data set was used to empirically determine the effects of monetary policy on the profitability of deposit money banks in Nigeria. The study adopted Johansen's multivariate co-integration procedure and the co-integration test was based on error correction model (ECM). The test for stationary or unit roots employed was the Augmented Dickey-Fuller (ADF) test performed on the variables. Hypotheses were formulated and tested using the panel regression. The study discovered that the monetary policy proxied by Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) had significant effects on profitability of deposit money banks in Nigeria. It was recommended that Central Bank of Nigeria should adjust Monetary Policy Rate and Cash Reserve Ratio in such a way that it will allow for increased liquidity to enable the deposit money banks discharge their lending and investment functions effectively. Monetary policy should be complimentary to fiscal policy and should be used together to have complimentary results.