Central Bank of Nigeria Regulatory Policies and Non- Performing Loans in the Nigerian Banking Industry

Abstract

This paper examined the nexus between Central Bank of Nigeria (CBN) regulatory policies and banks’ non-performing loans in Nigeria between the periods 1990 to 2021. Regulatory policies were captured using monetary policy rate, liquidity ratio and loan-to-deposit ratio as shown in the Central Bank of Nigeria Statistical bulletin 2021 edition, while the non-performing loans data was generated from the World Bank publications. The secondary data were analyzed by the use of vector error correction mechanism (VECM) and the pairwise granger causality tests. Results from the data analysis showed that CBN regulatory policies although influences non-performing loans by way of long run relationship has an insignificant effect on non-performing loans in Nigerian banks. Notably, data analyses further revealed that only loan-to-deposit ratio granger causes non- performing loans. Hence, it was concluded that Central Bank of Nigeria regulatory policies have an insignificant impact on banks’ non-performing loans in Nigeria. Thus, it was suggested that in order to effectively manage and reduce the incidents of non-performing loans in Nigerian banks, the apex regulatory body (CBN) should work towards improving on the effectiveness of its regulatory policies especially when it comes to the use of monetary policy instruments in addressing the problems of non-performing loans in Nigerian banks. Stakeholders should from time to time carryout periodic reviews of monetary policy instruments with a view to strengthening monetary policy tools that rely on market forces to transmit their effects.