EVALUATING THE EFFECTS OF MONETARY POLICY ON NIGERIAN COMMERCIAL BANKS

Monetary policy remains a fundamental tool for regulating economic activities and maintaining financial stability in Nigeria. The Central Bank of Nigeria (CBN), mandated by the federal government, employs various monetary policy instruments to control money supply, stabilize prices, and influence the performance of commercial banks. Historically, direct monetary control measures (1960–1985) dominated the Nigerian financial system, with fixed interest rates and credit allocations designed to align with government economic plans. However, these measures limited market efficiency and hindered financial market development. The introduction of the Structural Adjustment Program (SAP) in 1986 marked a major shift towards indirect, market-based monetary policy instruments such as open market operations, reserve requirements, and discount window activities. These reforms were complemented by foreign exchange market interventions and the establishment of discount houses, thereby enhancing the link between monetary policy and bank performance. Despite these changes, monetary policy objectives often remain conflicting—for instance, the pursuit of price stability may run counter to goals of interest rate stability and short-term employment generation. This study examines the effects of monetary policy on the performance of commercial banks in Nigeria, with particular focus on how different instruments influence liquidity, profitability, and credit allocation. By analyzing both historical and contemporary policy frameworks, the study provides insights into the causal nexus between monetary policy and banking sector performance, highlighting the implications for financial sector stability and sustainable economic growth.