EFFECT OF MONETARY POLICY INSTRUMENTS ON CAPITAL ADEQUACY OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study examines the effect of monetary policy instruments on capital adequacy of listed deposit money banks in Nigeria. This study specifically investigates the influence of Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) on Capital Adequacy Ratio (CAR) of listed Deposit Money Banks in Nigeria. Using sample of 13 banks and covering a study period of 10 years from 2015 to 2024, and data were extracted from the Central Bank of Nigeria statistical bulletins, published annual reports and account of the banks and were analysed using multiple regression techniques. The findings revealed that Monetary Policy Rate and Cash Reserve Ratio exert negative effects on capital adequacy; however, these effects are statistically insignificant. This suggests that although monetary tightening through higher interest rates and reserve requirements tends to place downward pressure on banks' capital positions, such pressures do not significantly erode capital buffers within the study period. The study concludes that monetary policy actions have limited direct impact on banks' capital strength in Nigeria and therefore recommends amongst others an enhanced coordination between monetary policy and prudential regulation to ensure sustained banking sector resilience and financial stability.

Keywords: Monetary Policy Rate, Cash Reserve Ratio, Capital Adequacy, Deposit Money Banks, Nigeria