MONETARY POLICY AND RETURN ON ASSETS OF DEPOSIT MONEY BANKS IN NIGERIA

This study examined the effects of monetary policy on the return on asset of Deposit Money Banks in Nigeria for a period of 34 years (1990 – 2023). Cash reserve ratio, liquidity ratio, monetary policy rate and broad money supply (M2) were the monetary policy tools considered as the study adopted the quasi-experimental research design. Secondary time series data were used for the study and these data were sourced from the World Bank (World Development Indicators) and Central Bank of Nigeria (CBN) statistical bulletin for 2023. The major tool of analysis was the Autoregressive Distributed Lag (ARDL) technique that covers short run analysis, bounds test and ECM estimation. Short run analysis revealed that cash reserve ratio has negative but significant effect on the ROA banks while liquidity ratio and broad money supply have negative insignificant effects on ROA of banks. It was revealed that monetary policy rate has positive insignificant effects on return on asset of banks. However, the study showed that there is a long run relationship between the variables; and in the long run, broad money supply has positive insignificant influence on the ROA of banks while cash reserve ratio, liquidity ratio and monetary policy rate have negative insignificant effects on the return on asset of Deposit Money Banks. Hence, the study concluded that monetary policy has an insignificant effect on the return on assets of Deposit Money Banks in Nigeria. The study suggested that policy makers should consider reducing the current cash reserve ratio in order to increase DMBs’ loanable funds and improve profitability; it is imperative for the regulatory authority in the Nigerian banking industry to strictly monitor DMBs’ liquidity levels in a bid to ensure that they maintain a healthy balance between liquidity and profitability; the Central Bank of Nigeria should further consider using monetary policy rate as a tool to boost the profitability of DMBs in Nigeria though there is need for a careful consideration in this regard; and the apex bank should put up better plans to curtail the volume of money supply outside the banking system in order to make monetary policy drives achieve better results.