Monetary Policy and Credit Delivery in Commercial Banks – Evidence from Nigeria

Abstract

The study embarked on finding out the effect and to what extent monetary policy instruments on credit delivery by banks. The problem of study is that high toxic assets remains high despite the policies placed over time thus questioning the effect of monetary policy on banks asset quality and returns. The objective of study in trying to evaluate the factors responsible for bank performance in Nigeria the research objective is to determine the level of effect of monetary policy-money supply, liquidity ratio; cash reserve ratio and monetary police rate on commercial banks credit delivery. The literature review contains the conceptual, theoretical and empirical review of the area of study. In the methodology of study, the data utilized include Cash Reserve Ratio (CRR), Turnover ratio, Liquidity ratio, Monetary Policy Rate (MPR), Money Supply (MS), Bank Assets and Loans and Advances (TLA). The study also used the ordinary least square (OLS) since it enabled the researcher to capture the essence of the work effectively in addition to its high level of simplicity and global acceptability. Moreover, a 5% confidence level is adopted for the study. The MPR, MSP and CRR have positive relationship with LADV. That is, the higher the MPR, MSP and CRR, the higher the LADV. However, LQR has negative relationship with LADV. The R2 at 98.27% indicates that the variables are strongly fitted which was also confirmed by the adjusted R-2 found to be 98.0%. The t-test shows that t-cal for MPR is 0.176764 while its prob-value of 0.8608 is significant at 5% confidence level leading to the rejection that there is significant relationship between monetary policy rate and bank loans and advances. The t- cal for MSP is 30.01694 with a prob-value of 0.000 that is insignificant at 5% confidence level leading to the acceptance that there hence acceptance that there is significant relationship between money supply and bank loans and advances. The t-cal for LQR is - 0.090313 with a prob-value of 0.9