Effect of Central Bank of Nigeria (CBN) Regulation on the Profitability of Selected Deposit Money Banks (2004-2016)

Abstract

This Study examined the effect of Central Bank of Nigeria regulation on the profitability of Selected Deposit Money Banks (2004-2016). Banking regulation is implemented to ensure a safe and sound financial system in the economy. Secondary data were sourced from published Annual Financial Statements of the selected Deposit Money Banks that are considered very “strong” and the Central Bank of Nigeria Statistical bulletin over Thirteen years spanning from 2004-2016. The regression analysis used to test the desired hypotheses was Statistical package for Social Sciences (SPSS.). Findings revealed that monetary policy rate and liquidity ratio were the variables that have positive and significant relationship with Earnings per share, only monetary policy rate has positive significant relationship with return on assets (ROA), monetary policy rate has significant positive relationship with net profit margin and monetary policy rate was found to be the only variable that has significant (positive) relationship with return on equity. The study concluded that Central Bank of Nigeria regulation has not fully achieved its objectives in the selected deposit money banks profitability. The study recommended among others that Central Bank of Nigeria should review the monetary policy rate in a way that it should not be too stiffened in order to enable deposit money banks record reasonable level of profitability.

Keywords: Profitability, Regulation, Deposit Money Bank, Financial System, Moral Hazard