POST-CONSOLIDATION MACROECONOMIC VOLATILITY AND FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA (2006 – 2020)

Abstract

This study aims to examine the effect of volatility of macroeconomic variables on the financial performance of Deposit Money Banks in Nigeria. Secondary annual time series data from 2006 to 2020 on variables for this study were obtained from the Central Bank of Nigeria Statistical Bulletin 2021. A GARCH model analysis of annual time-series data on liquidity ratio, foreign exchange rate, interest rate, Real GDP, monetary policy rate, credit reserve ratio, inflation rate and aggregate bank profit as a measure of banks’ profitability from 2006 to 2020 was undertaken. The empirical findings showed that there exists volatility in these variables with LIQR, INTR, MPR, EXCR, and RGDP positively affecting banks’ financial performance; while INFL and CRR negatively affect banks’ profitability within the period under consideration. The study recommends that monetary policies should be introduced by Central Bank of Nigeria towards increasing MPR, RGDP and reduce CRR, INFL to stimulate the financial performance of deposit money banks and the general stability of the financial system in Nigeria