Effect of Interest Rate on the Performance of Deposit Money Bank in Nigeria

This study investigated the effect of interest rate on the performance of deposit money banks in Nigeria, using data for the period of 1981-2022.The objective of the study was to: investigate the effect of lending rate, monetary policy rate and interbank rate on the performance of deposit money banks in Nigeria. Ordinary Least Squared (OLS) method of data analysis was adopted because of its Best Linear Unbiased Estimators (BLUE) properties. The data for the variables used was sourced from Central Bank of Nigeria Statistical Bulletin. The variables used were lending rate, monetary policy rate and interbank as the independent variables, while return on equity is the dependent variable. The study adopted the unit root test, co-integration approach, as well as Error Correction Mechanism to analyze the corrected data. E-View software was used for the analysis. The study found that lending rate has no significant effect on performance of deposit bank in Nigeria. Monetary policy rate has significant effect on performance of deposit bank in Nigeria. Interbank rate has significant effect on performance of deposit bank in Nigeria. The study recommends that A floating rate system can help the Central Bank of Nigeria respond to lending rate more effectively and maintain price stability. The Central Bank should closely monitor and adjust monetary policy rates as needed to maintain price stability and support economic growth. The Central Bank can encourage savings and investment by offering stable interbank rate and other financial instruments.