Money Market Instruments and Bank Performance in Nigeria

Ndugbu, Michael O., Duruechi, Anthony H, Ojiegbe, Josephine N.


The paper examines the relationship between money market instruments and bank performance in Nigeria. The data for the study were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin. This was analyzed with the e-view 7.1 statistical package in line with Ordinary Least Square (OLS) estimations. Results obtained showed that stationarity of the data were established with the Augmented Dickey Fuller (ADF) Unit Toot test, the Johansen Co-integration test indicated the existence of long-run relationship between the variables. Granger Causality as revealed by the Pairwise tests runs uni-directionally and bi-directionally from Performing Loans and Advances to Money Market Instruments. The Variance Inflation Factor test for multicollinearity shows that multi-collinearity is not severe and therefore can be tolerated. The ordinary least square model estimation revealed specifically that money market instruments (treasury bills, commercial papers, and federal government bond) have positive relationships and significant effects on bank performance in Nigeria. Notably, treasury bills, commercial papers and federal government bonds were the main contributors to bank performance while bankers acceptance has a negative relationship and significantly impacted adversely on bank performance. The study recommended that, policy makers and stakeholders in the industry should intensify efforts towards improving policies and reforms that encourage investment in money market instruments by banks for greater performance and sustainable growth.

Keywords: Bank Performance, Treasury bills, Commercial papers, Federal government bonds, Bankers acceptance.

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