Abstract
This study investigates the impact of monetary policy on commercial bank performance in
Nigeria from 1990 to 2023, utilizing time series data sourced from the CBN Statistical Bulletin.
The dependent variable used in this study is return on equity (ROE), while the independent
variables are Money Supply (MS), Interest Rates (INTR), and Exchange Rates (EXR). The data
analysis techniques employed include descriptive statistics, unit root tests, bounds
cointegration, the Autoregressive Distributed Lag (ARDL) estimation method, and residual
diagnostics tests. The Augmented Dickey-Fuller (ADF) unit root tests reveal a mix of I(1) and
I(0) series, indicating that the variables differ in their levels of integration. Evidence of
cointegration was established, suggesting a long-term equilibrium relationship among the
variables. The ARDL long-run results indicate that the impact of money supply on ROE is not
statistically significant, with a coefficient of 0.031322 and a probability of 0.6137. This
suggests that the long-term effects of money supply fluctuations on bank profitability are
minimal. Similarly, neither interest rates nor exchange rates show a significant impact on ROE
in the long run, indicating that while these factors affect bank performance in the short run,
their long-term effects are negligible. Given these findings, this study concludes that while
money supply, interest rates, and exchange rates contribute positively to commercial banks'
performance, they do not significantly impact commercial banks' performance in Nigeria in
the long run. Thus, it is recommended, among other things, that the Nigerian government
should prioritize maintaining a stable monetary policy environment. This stability can foster
predictability and confidence, encouraging long-term investment and growth in the banking
sector. It is also recommended that the government should work with financial regulators to
enhance banks' risk management capabilities, particularly in hedging against short-term
exchange rate and interest rate fluctuations. This could include promoting the use of
derivatives and other risk management tools.