MONETARY POLICY AND COMMERCIAL BANKS PERFORMANCE IN NIGERIA

Abstract

This study examines the relationship between monetary policy and the performance of commercial
banks in Nigeria, focusing on the impact of interest rate, cash reserve ratio (CRR), and liquidity
ratio (LR) on return on assets (ROA). Using an ex-post-facto research design, the study employs
time series data from 1994 to 2024 sourced from the Central Bank of Nigeria Statistical Bulletin.
The findings reveal that while interest rate does not have a statistically significant positive impact
on ROA, both CRR and LR exhibit significant positive effects on bank performance. These results
highlight the crucial role of liquidity management and reserve requirements in enhancing banking
sector profitability. Based on these findings, the study recommends that policymakers implement
interest rate policies that support profitability, maintain an optimal cash reserve ratio to balance
liquidity with returns, and encourage effective liquidity management strategies to strengthen
financial stability.