Abstract
Abstract This study examined the nexus between monetary policy and the achievement of a bank’s profit objective. There have been lots of arguments about the benefits of monetary policy implementation on deposit money bank’s operations, since the policies have been seen to impact on their performance. This study was carried out to establish the influence of variables like Liquidity Ratio, Interest and Money supply (M2), which are used as monetary policy instruments, on deposit money bank profitability objective. The study covers the period from 2002-2019. The Auto Regressive Distributed Lag and Error correction model were adopted in the analysis of the data. The study revealed that there was a positive long run relationship between Liquidity Ratio and deposit money bank’s profitability; there also existed a negative long run relationship between interest rate and deposit money bank profitability; lastly, there existed a positive long run relationship between Money Supply (M2) and deposit money bank’s profitability. Based on the findings, monetary authorities should put in place measures for Liquidity ratio, interest rates and M2 implementation to aid deposit money banks operations in the achievement of their profit objective.
Highlights
According to the Central Bank of Nigeria (CBN, 2011), monetary policy is an action of the government through its monetary authorities to influence the quantity, cost and availability of money credit in order to achieve desired macroeconomic objectives
This study is primarily interested in finding out the relevance of selected monetary policy indicators such as liquidity ratio, interest rate and M2 in predicting the trends of banks’ profitability from the period of 2002-2019
From the research findings it can be concluded that a nexus exists between monetary policy implementation and bank profitability
Summary
According to the Central Bank of Nigeria (CBN, 2011), monetary policy is an action of the government through its monetary authorities to influence the quantity, cost and availability of money credit in order to achieve desired macroeconomic objectives. Monetary Policies could either be expansionary or contractionary, with the aim of achieving macroeconomic objectives in the country. These Macroeconomic Objectives include, Full employment where those who are willing and able to work gain employment or jobs. Increased productivity, which is, increase in output per unit of labour and favourable balance of payments in equilibrium. This means having more foreign income through exports and less expenses through imports
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