Monetary Policy and Deposit Money Banks Lending in Nigeria 2000-2020

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International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue III, March 2022 | ISSN 2454–6186

Monetary Policy and Deposit Money Banks Lending in Nigeria 2000-2020

Obi-Nwosu Victoria O; Chukwu, Kenechukwu Origin
Department of Banking and Finance, Nnamdi Azikiwe University, Awka, Anambra State, Nigeria

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Abstract: This study investigated the effect of monetary policy on deposit money banks lending in Nigeria (2000 – 2020) using secondary data from Statistical bulletin of Central Bank of Nigeria. The research work used the Vector Autoregressive Estimates to test the effect of the independent variables (Monetary Policy Rate, Liquidity Ratio, Cash Reserve Ratio and Loan to Deposit Ratio) on the dependent variable (Total loans and advances). The study found that monetary policy has negative and significant effect on deposit money banks lending in Nigeria within the period of the study. The study therefore advocates that monetary authority should strive to maintain a reasonable interest rate that will tends to reduce cost of borrowing and lending in the economy. There is need to strengthen bank loan and advance and monetary policy through effective and efficient regulation and supervisory framework. Government should through the Central Bank of Nigeria ensure working monetary policy instrument and make a periodic review of the polices in a way that will encourage bank lending. Monetary authority should manage the lending rate properly for it to be attractive and affordable for investors to borrow money from the bank. In conclusion, monetary policy rate, liquidity ratio, cash reserve ratio and loan to deposit ratio should be looked into by monetary authority in a way that is friendly to loan advancement especially relating to those who are in need of it. Finally, monetary policy should not be used in isolation but in collaboration with fiscal policy.

Keywords: Monetary Policy and Bank Lending


The world is barely recovering from the damages caused by the Covid-19 pandemic. To reflate and put world economies (especially developing economies) back to the era of sustained growth and prosperity, finance would play an essential role in this regard. As developing economies seek for external funding sources and seeks debt cancellation and rescheduling, internal funding sources becomes even more pertinent especially in the private sector. Consequent on this, an empirical exploration of the effect of monetary policy variables on bank lending (that is, credit creation) in Nigeria is timely.