JEFMS Journal

ABSTRACT:

This work investigated the relationship between interest rate deregulation and performance of Nigerian deposit money banks for the period 1996-2018. Interest rate deregulation was disaggregated into prime lending rate, maximum lending rate, 3-months deposit rate and over 12-months deposit rate while return on assets (ROA) was used as a proxy for deposit money banks’ performance. Data on the above variables were sourced from the Central Bank of Nigeria Statistical Bulletin (2018 edition) and the World Bank data base. The data were tested for stationarity using the Dickey-Fuller (D-F) test, for long-run relationship using Bound’s co-integration test, and for reliability of ARDL results using serial correlation, heteroscedasticity and normality tests. The results of the tests revealed that all the variables were integrated of order zero or one, and that a long-run relationship exists between the variables. Consequently, ARDL model for parameter estimation process revealed that only prime lending rate was positively related to ROA of banks while none of the explanatory variables was statistically significant. The researcher then submitted that there is no significant relationship between interest rate deregulation and the performance of Nigerian deposit money banks for the period considered. Hence, deposit money banks should strive to mobilize adequate savings from surplus spenders by offering them deposit rates that are capable of inducing savers to increase their savings and boost the availability of loanable funds. Also, there is urgent need to restructure the Nigerian financial system whereby policies by the monetary authorities will achieve pre-determined goals. In essence, to make interest rate policies meaningful, there is need to curtail financial transactions that escape the banking system.

Keywords:

Interest Rate Deregulation, Performance of Deposit Money Banks, Time Series Evidence, Nigeria

REFERENCES:

1) Afza, A., Raja, R., Imran, U.C and Saima, S. (2018). Interest rate and financial performance of banks in Pakistan. International Journal of Applied Economics, Finance and Accounting, 2(1), 45-56.

2) Alhassan, M.D, Anokye, F.K and Gakpetor, E.D (2018). The impact of interest rate spread on bank profitability in Ghana. European Journal of Business, Economics and Accountancy, 6(1), 67-89.

3) CBN (2018). Central Bank of Nigeria Statistical Bulletin, Abuja, 29.

4) Eke, F.A., Eke, I.C and Inyang, O.G (2015). Interest rate and commercial banks’ lending operations in Nigeria: A structural break analysis using Chow Test. Global Journal of Social Sciences, 14.

5) Ene, E.E. Agok, A.S and Ene, J.C (2015). Effect of interest rates deregulation on the performance of deposit money banks in Nigeria. International Journal of Managerial Studies and Research, 3(9).

6) Eregha, P.B (2010). Interest rate variation and investment determination in Nigeria. International Business Management, 4(2).

7) Kolawole, B.O (2013). Institutional reforms, interest rate policy and the financing of the agricultural sector in Nigeria. European Scientific Journal, 9(12),

8) Ngerebo-a, T.A., & Lucky, A. L., (2016). Interest rates and deposit money bank’s profitability: Evidence from Nigeria (1980 – 2014). International Journal of Empirical Finance, 5 (1), 22 – 35.

9) Obagunwa, B., & Akinwale, S.O (2018). Interest rate deregulation and loans and advances of deposit money banks in Nigeria. The International Journal of Business Management and Technology, 2(4),

10) Obute, C., Adryorough, A., & Itodo, A. (2012). An assessment of impact of interest rate deregulation on economic growth in Nigeria (1964-2009). Journal of Business and Organizational Development, 4(1).

11) Ogunbiyi, S. and Ihejirika, P. (2014). Interest rates and deposit money banks’ profitability nexus: the Nigerian experience. Arabian Journal of Business and Management Review (OMAN Chapter), 3(11),

12) Okoye, V., & Eze, O.R. (2013). Effect of bank lending rate on the performance of nigerian deposit money banks. International Journal of Business and Management Review, 1(1),

13) Omowunmi, F.O. (2012). The effect of bank deregulation on bank performance in Nigeria. International Journal of Advances in Management and Economics, 1(5).

14) Onoh, C.F (2019). Empirical analysis of the impact of interest rate deregulation on the performance of deposit money banks in Nigeria from 1989-2017. American Journal of Economics, 9(2).

15) Ozigbu, J.C (2018). Interest rate deregulation and dynamics of industrial sector’s productivity in Nigeria. International Journal of Innovative Research & Development, 7 (1).

16) Pesaran, M.H., & Shin, Y. (1999). An autoregressive distributed lag modeling approach to cointegration analysis’ in S Strom, (ed.) Econometrics and Economic Theory in the 20th Century”, The Ragnar Frisch Centennial Symposium, Cambridge: Cambridge UP.

17) Soludo, C. (2008). Issues on level of interest rates in Nigeria ,http://www.cbn.gov.ng.

18) Ugwuanyi, U. (2012). The interest rate deregulation and bank lending in Nigeria. Journal of Economics and Sustainable Development, 3(12)