Economic and Financial Review
Publisher
Central Bank of Nigeria
Keywords
Monetary Policy, Commercial Banks, Nigeria
Abstract
This study provides richer insights into the performance of commercial banks in Nigeria using more indicators and more refined methodologies. It sheds more light on the critical factors responsible for differential performance among the banks. The high levels of profitability declared by banks in the light of their high levels of under-capitalization imply excessive risk-taking which is incompatible with prudent banking behaviour. We also found that the size of banks exert a positive and statistically significant effect on their performance. The result suggests that the promotion of large banks may be in the interest of maintaining a safe and sound banking system. The results further show a statistically significant and negative effect of managerial efficiency on banks' profit performance. This finding is reinforced by the low level of operating efficiency as indicated in the ratio of operating expense to total earnings. The findings raise serious concern about the quality of management in the Nigerian banking industry and the need for concerted efforts to promote staff development programmes as a logical first step in preparing for dynamic banking in the 1990s and beyond. Our results also show that the monetary-authorities in Nigeria are unable to impose their capital adequacy standards on the banks they presumably regulate. This was reflected by the non-significance and negative Sign on the regulatory variable. However, the Central Bank had no enabling Decree empowering it to take more drastic or punitive measures against the erring banks within the period under review. Although BOFJ and the Failed Banks Decrees have now remedied the situation, the lapses in these Decrees, such as the absence of instrument autonomy and high cost of restructuring, should be quickly addressed.
Publication Title
CBN Economic and Financial Review
Issue
3
Volume
34
Recommended Citation
Nyong, Michael O. (1996). Monetary Policy and Commercial Bank's Performance in Nigeria: Some Theoretical and Empirical Extensions. CBN Economic and Financial Review. 34(3), 777-795.