Monetary Policy and the Efficiency of Commercial Banks in Nigeria
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Date
2015-08
Authors
Ogunniyi, M.B
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Abstract
The Central Bank of Nigeria, from time to time, introduces various monetary policies and reforms to reposition the commercial banks for efficient-performance in order to achieve macroeconomic objectives. Two events occurred in the time frame 2003-2012; they are the 2005 consolidation exercise and the USA sub-prime mortgage crisis that hit Nigeria in 2008, and these events triggered monetary policy reactions. However, commercial banks exhibited different efficiency growth responses to these policies in the three periods of pre-consolidation, post-consolidation and post-global financial crisis that inevitably undermined the achievement of macroeconomic objectives. This study therefore evaluated the trend of commercial banks’ efficiency at different episodes. It examined the effect of bank indicators on bank efficiency and analyzed the effect of monetary policy rate on the impact of bank indicators on bank efficiency. The efficiency scores of commercials banks via bank indicators were obtained using Data Envelopment Analysis (DEA) in line with the production approach. The researcher sets deposits, D; bank income, I; and loans L as output variables while the input variable is capital adequacy, CA. This was followed by a panel Tobit Regression Analysis with efficiency score as dependent variable and bank indicators as independent variables with inflation, gross domestic product and monetary policy rate as the accompanied variables. Eleven (11) commercial banks that retained their identities after the consolidation exercise and global financial crisis were used in the study. The results from the study revealed that growth of capital adequacy consistently and increasingly impacted negatively by 13.2% on the efficiency of commercial banks. Loan growth consistently had an adverse effect on bank efficiency till the post consolidation episode by as much as 13.6% but after the financial crisis loan growth expanded bank efficiency. Deposits steadily had a positive impact on efficiency of 10.5% in pre-consolidation but 13.9% after the financial crisis. Also, bank income generation improved bank efficiency after the consolidation exercise with 3.2% differential. Whereas, monetary policy rate appeared to worsen the adverse effect of capital adequacy on bank efficiency, it depressed the positive effect of bank income on bank efficiency. These findings underscore the need for policy makers to articulate and timely create appropriate financial regulations and guidelines in conformity with international prudential guidelines for the country’s financial institutions. This study showed an improvement to the existing methodology with the cross combination of micro and macro economic variables as the determinants of banking efficiency. Moreover, the study included post global financial crisis bank efficiency in the inter-temporal efficiency analysis which is an addition to previous studies. This study recommends that CBN regulations on capital adequacy should not be too stringent to enable commercial banks grow in their classified capacity. In addition to this is the need for a balance in the fiscal and monetary structures of the economy.
Description
A Thesis Submitted to the School of Postgraduate Studies, University of Lagos
Keywords
Monetary Policy , macroeconomics , Commercial Banks , Fiscal and monetary structures , Research Subject Categories::SOCIAL SCIENCES::Social sciences
Citation
Ogunniyi, M.B (2015). Monetary Policy and the Efficiency of Commercial Banks in Nigeria. A Thesis Submitted to University of Lagos School of Postgraduate Studies Phd Thesis and Dissertation, 125pp.