MODERATING EFFECT OF BANK SIZE ON THE RELATIONSHIP BETWEEN MONETARY POLICY AND CAPITAL ADEQUACY OF LISTED DEPOSIT MONEY BANKS IN NIGERIA.

Abstract

This paper investigated the effect of bank size on the relationship between monetary policy and capital adequacy of listed deposit money banks in Nigeria for the period of 2015-2024. The thirteen 13 listed Deposit Money Banks (DMBs) on the Nigerian Exchange (NGX) out of the twenty-four 24 licensed (DMBs) were used for this study. Specifically, the study adopted multiple regression techniques as a tool of analysis and data were collected from secondary source through the Central Bank of Nigeria statistical bulletins; annual reports and account of the sampled banks. Capital adequacy is proxied by the Capital Adequacy Ratio (CAR), while monetary policy is measured using the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR). Bank size is captured as the natural logarithm of total assets, and interaction terms are employed to test the moderating effect of bank size. The findings reveal that contractionary monetary policy exerts a negative and statistically significant effect on banks' capital adequacy, indicating that higher policy rates and reserve requirements weaken banks' ability to sustain regulatory capital buffers. The findings further show that bank size has a positive and significant influence on capital adequacy, with larger banks maintaining stronger capital positions than smaller banks. In addition, the interaction results demonstrate that bank size significantly moderates the relationship between monetary policy and capital adequacy, such that the adverse effects of monetary tightening are less pronounced for larger banks. The study concludes that the impact of monetary policy on bank capital adequacy in Nigeria is heterogeneous and strongly conditioned by bank size. These findings underscore the need for size-sensitive monetary and prudential policy frameworks that balance macroeconomic stabilization objectives with banking sector resilience.

Keywords: Bank size, Monetary policy, Capital adequacy, Deposit money banks; Nigeria