Monetary Policy and Commercial Banks’ Performance in Nigeria

Abstract

The study was carried out to examine the impact of monetary policy on commercial banks’ performance in Nigeria in a micro-panel analysis. Interest rate and money supply were used as proxies for monetary policy, while profit before tax (PBT) was used to represent commercial banks’ performance. Pooled regression, Fixed effect regression, and random effect regression were all carried out in the analysis. However, Hausman test revealed that fixed effect regression is the most appropriate. The results show that there is a positive relationship between banks’ profits and monetary policies as proxied by money supply and interest rate. However, interest rate was not statistically significant at 1% and 5% levels. This study therefore recommends that interest rate policy should be looked into by the monetary authority in a way that is friendly to loan advancement in the country.

Key words: Monetary Policy, Fixed effect, Hausman test, Banks’ Profits, Nigeria