Description
Impact of fiscal and monetary policies in profitability of banks in Nigeria.
Abstract
The study examined the effect of monetary and fiscal policy on bank profitability in Nigeria from 2001 through 2021. The study modeled bank profitability measured by return on equity (ROE) as a linear function of the monetary and fiscal policies, measured by monetary policy rate (MPR), cash reserve ratio (CRR) and total of government expenditure (TGEX). Data were collected from the Central Bank of Nigeria Statistical Bulletin and analysed by regression estimated by the ordinary least square approach. The findings show that all the independent variables except government expenditure were negatively related to bank profitability in Nigeria. The foregoing indicates that the cash reserve ratio, monetary policy rate and total government expenditure are good instruments for determining bank profitability in Nigeria. Although government expenditure showed a contrary relationship to expectation, nevertheless, the independent variables are adjudged average predictors of economic growth rate with R2 of 0.51. Also going by analysis that the model’s overall p-value is 0.006, it was concluded that fiscal policy and monetary policy are significantly effective in determining bank profitability in Nigeria and recommended that Monetary authority should regulate the monetary policy effect on banks by ensuring that monetary policy rate, which is the base lending rate strongly spur improvement in bank operating profitability so that the present negative effect of monetary policy rate can be reversed. Keywords: Monetary policy, Fiscal policy, Bank profitability, Government expenditure..
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