Academy of Strategic Management Journal (Print ISSN: 1544-1458; Online ISSN: 1939-6104)


Monetary Policy and Banks Credit Supply: A Case for Improved Performance

Author(s): Elizabeth Oyewunmi Durotoye, Alexander Ehimare Omankhanlen, Benjamin Ighodalo Ehikioya

This study examines the relationship between Nigerian monetary policy and the banking industry credit supply for the period 1970 to 2020. A banking sector performance index was used to measure the allocation efficiency of banks credit, while the total credit supply was used to measure the performance of the overall banking industry. On the other hand, monetary policy rates, cash reserve ratios, loan-to-deposit ratios, and banks liquidity ratios were used as proxies for monetary policy. The Central Bank of Nigeria's (CBN) Statistical Bulletin published annual data. The study found that monetary policy rate had a considerable positive influence on bank credit supply in the short run but had an insignificant positive effect in the long run, using Autoregressive Distributed Lag (ARDL) methodologies. The cash reserve ratio was also determined to have a significant negative influence on bank credit supply in both the short and long run. Based on the preceding, the study stated that periodic banking sector reforms should be implemented, and the liquidity level of deposit money institutions should be appropriately monitored.

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