International Journal of Sub-Saharan African Research (IJSSAR)

In 2009, ten out of twenty-four (24) banks were found to be in a severe liquidity difficulty according to the results of the audit inspection of banks carried out by the CBN (CBN, 2020). To salvage the situation, the CBN reduced the monetary policy rate. It was expected that, as MPR decreased from 6.89 percent to 6.25 percent in 2010, and prime lending rate fell from 16.75 percent to 15.74 percent (which was a good fit), that non-performing loan would decrease, rather than that, non-performing loan ratio increased to 20.10 percent from 18.14 percent. This study investigated monetary policy, credit risk, and the performance of deposit money banks in Nigeria, between 1981 to 2023. Data for the study were obtained from Central Bank of Nigeria (CBN) Statistical Bulletin (2020) and audited annual report and accounts of Deposit Money Banks (DBMs) between 1981 to 2023. Using the Augmented Dickey Fuller (ADF) unit root test, we were able to analys the data and find that the integration order was jumbled. In this case, the bound test for long-run relationships between the variables could not be avoided; hence, an auto-regressive distributive lag model (ARDL) were used. There was a long-run link between the variables, according to the ARDL bound test. Both the short-term and long-term analyses showed that the monetary policy tools used to measure deposit money banks' performance—net interest income (NII)—had no discernible effect on NII and were negatively correlated with credit risk (MPR, CRR, and NPL). In contrast, a positive and statistically significant link was found between net interest income (NII) and the coefficient of broad money supply (MS) in both the short and long term. Among other things, the report suggests that the country's monetary policymakers bring the policy rate down to single digits, which would lead deposit money institutions to further lower lending rates and make inexpensive loans available to investors. Also, as a policy measure, government should quarterly audit deposit money banks’ loan portfolio to reduce the level of nonperforming loans in the industry.