MONETARY POLICY AND BANKING EFFICIENCY: EXAMINING TURNOVER RATIOS IN NIGERIAN COMMERCIAL BANKS

Abstract

The research looks at the monetary policy instruments employed by the Nigerian monetary authorities and their effects on
turnover ratio of commercial banks in Nigeria. The objective of the research was to examine the effects of monetary policy
instruments-money supply, liquidity ratio, monetary policy rate, and cash reserve ratio- on commercial banks turnover ratio in
an attempt at finding out the true nature and the extent monetary policy instruments have been successful in impacting on
banking performance in Nigeria. To give the reader a more informed knowledge on the area, the conceptual, theoretical and
empirical literature was examined. The methodology 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. OLS became imperative for use in this work as the theoretical foundation for this
procedure is well highlighted in many articles of Akanbi & Ajagbe (2012), Amassoma, Wosa & Olaiya (2011); Ekpung, Udude &
Uwalaka (2015); Okoye & Udeh (2009), & Olokoyo (2012). The analysis done showed that monetary policy had some level of
effect on bank performance proxied by Turnover rate (TOR), Bank Assets (BAS) and Loan and Advances (LADV). It is equally
indicative of the fact that the relationship is instrument sensitive, i.e, some monetary policy tools work better on some bank
performance indexes while such may not work on some other ones.
LRR was negative and equally significant in relation with Bank Turnover Rate (TUR), while Money supply (M2) alone had a
positive and significant in relation with Bank Assets (BNKAS), on the other hand, Cash Reserve Ratio (CRR) alone had a negative
and significant impact on Bank Loan and Advances (LADV). The apriori expectation between the afore mentioned variables in
relation to the dependent variables were met. The negative relationship between liquidity ratio and turnover ratio also indicates
that when CBN increases the ratio banks liquid assets reduces which hampers their ability to create more loans and engage in
more investment thus reducing their turnover hence conforms to expectation. In conclusion, it was apparent that the high level
of forged and decorated balance sheet in the past could have made the monetary policy tools less effective and results unreliable.
However, with the various reforms after the financial crises, the prudential guidelines and implementation of a uniform financial statement reporting, the monetary policies of the CBN have tend to yield better results. With the recent introduction of the
Monetary Policy Rate (MPR) by the CBN as the major tool for signaling its monetary stance, the need for a monetary policy
reaction function which clearly depicts the decision making intention of the Bank would assist economist and financial markets
in predicting the future path of monetary policy. Recommendations of study include that the Central Bank of Nigeria (CBN)
should adjust the monetary policy rate by reducing the cash reserve ratio which will increase liquidity to enable the commercial
banks to discharge their lending and investment duties effectively to the public. The CBN and the Ministry of finance should
work more closely to objectively articulate policies in the same economic direction. The CRR should be complementing the Open
Market Operations (OMO) in ensuring that excess liquidity or lack of it in the banking system is minimized, that way Money
Supply (M2) will be more effective as a tool on measuring other performance indicators. The policies that may affect banks loans
which are necessary for economic development should be checked. Effective monitoring of banks loans performance should be
carried out while toxic assets should be followed up prompting to reduce cases of loss loans and assets. The CBN should ensure
that more regulations and supervision are carried out on the banks regularly so as to avoid the manipulated financial reports as
noted in our findings