MONETARY POLICY AND BANK PERFORMANCE IN NIGERIA: A VECTOR AUTOREGRESSION (VAR) APPROACH

Abstract

This paper investigated the effectiveness of monetary policy in enhancing the performance of the Nigerian Commercial Banks in terms of their Profitability, Liquidity and Credit performances for the period 1980 to 2017. The monetary policy variables used were, monetary policy rate, Treasury Bill rates, cash reserve ratio and money supply growth. Applying Vector Autoregression analysis (VAR) on the variables, the study found that overall, monetary policy conduct was effective in enhancing commercial banks performance in Nigeria over the period. Specifically, it was found that monetary policy rate and Treasury Bill rates were positively related to profitability of commercial banks in Nigeria. Also, monetary policy rate, money supply and cash reserve ratio were very effective in improving the credit performance of commercial banks in Nigeria. Furthermore, both monetary policy rate and money supply movements produced positive impact on the liquidity performance of commercial banks at various magnitudes. Hence, the study recommended that a good mix of policy instruments be used to enhance the returns on investment in the Nigerian banking system.