Deregulation of Interest Rate in Nigeria and Deposit Money Bank’s Performance (1996 – 2018)

Abstract

This study looked at the relationship between interest rate deregulation and performance of Nigerian deposit money banks for the period 1996-2018.  Interest rate deregulation was broken down into prime lending rate, maximum lending rate, 3-month deposit rate, and over 12-month deposit rate, with return on assets (ROA) serving as a proxy for deposit money bank performance. Dates for the variables listed above were obtained from the Central Bank of Nigeria Statistical Bulletin (2018 edition) and the World Bank data base. The data were assessed for stationarity with the Dickey-Fuller (D-F) test, long-run relationship with the Bound's co-integration test, and ARDL reliability with serial correlation, heteroscedasticity, and normality tests. The results of the tests revealed that all of the variables were integrated of order zero or one, and that the variables have a long-run relationship. As a result, the ARDL model for parameter estimation revealed that only prime lending rate was positively connected to bank ROA, whereas none of the explanatory factors were statistically significant. The researcher then claimed that there is no meaningful association between interest rate deregulation and the performance of Nigerian deposit money banks during the study period. As a result, deposit money institutions should attempt to mobilise appropriate savings from surplus units by offering deposit rates capable of enticing savers to grow their savings and increasing the availability of loanable funds.