Effect of Prudency Guidelines on Nigeria Deposit Money Banks Performance
Abstract
The study examines the effect of prudency guidelines on Nigeria Deposit Money Banks performance between 2008 to 2022. Ex post-facto research design was used. Quarterly time series data were extracted from the Central Bank of Nigeria's statistical bulletin 2022 and Autoregressive Distributed Lag (ARDL) bound testing framework was used based on the unit root test result. The dependent variable Deposit Money Banks performance was proxied by return on assets, while the independent Variable, prudency guidelines was proxied by capital adequacy requirement and liquidity requirement. Error Correction Model (ECM) approach was used in order to establish the relationship between prudential Prudency Guidelines and Nigeria Deposit Money Banks Performance. Based on Wald test, it was found that capital adequacy requirement had a significant effect on financial performance of Deposit Money Banks in Nigeria, also Liquidity ratio had a significant effect on financial performance of Deposit Money Banks in Nigeria. Therefore, the study recommends that the Central Bank of Nigeria (CBN) should establish stringent monitoring mechanisms to regularly assess the compliance of deposit money banks with prudential guidelines. This includes conducting regular audits, scrutinizing financial reports, and promptly addressing any deviations to ensure sustained adherence to prudent banking practices. The study also recommends that the CBN should increase the existing 30% liquidity ratio to about 32%, in order to achieve high loan-to-deposit ratio in the market. This can positively influence financial performance of Deposit Money Banks (DMBs).