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Analysis of Transmission of Monetary Policy Shocks on Non-Performing Loans in Nigeria
Subject area: Arts, Social Sciences and Humanities · Area of research: Monetary Policy
Abstract
Non-performing loans (NPLs) present a significant concern for the banking system, posing threats to financial intermediation and the overall health of the economy. This study investigates the transmission mechanisms of monetary policy shocks to NPLs in Nigeria from 2007Q1 to 2024Q1 using Structural Vector Autoregression (SVAR) model. Key monetary policy variables?lending rate, Treasury bills, broad money supply, and the real effective exchange rate?are analysed for their impact on NPLs. The results reveal significant and varying impacts of monetary policy instruments on NPLs. Treasury bills emerge as the most influential instrument, consistently showing a negative impact on NPLs. Lending rates display a complex relationship, initially reducing NPLs but eventually contributing to their increase in the long run. The real effective exchange rate shows a positive relationship with NPLs, indicating that currency depreciation leads to increased NPLs. Broad money supply exhibits a slight but growing negative impact on NPLs. These findings indicate a complex relationship between monetary policy and NPLs in Nigeria, suggesting the need for the monetary authority to adopt a dynamic approach to monetary policy, considering the impacts of the various monetary policy instruments on NPLs, in the immediate and long-term.
Keywords
monetary policy, non-performing loans, Structural VAR JEL Classification: E52, G21, C32
How to cite this paper
@article{1706493,
author = {Nwanja, Tochukwu Felix, Ezie, Obumneke, Oniore, Jonathan Ojarikre},
title = {Analysis of Transmission of Monetary Policy Shocks on Non-Performing Loans in Nigeria},
journal = {Iconic Research And Engineering Journals},
year = {2024},
volume = {8},
number = {5},
pages = {252-266},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1706493.pdf},
abstract = {Non-performing loans (NPLs) present a significant concern for the banking system, posing threats to financial intermediation and the overall health of the economy. This study investigates the transmission mechanisms of monetary policy shocks to NPLs in Nigeria from 2007Q1 to 2024Q1 using Structural Vector Autoregression (SVAR) model. Key monetary policy variables?lending rate, Treasury bills, broad money supply, and the real effective exchange rate?are analysed for their impact on NPLs. The results reveal significant and varying impacts of monetary policy instruments on NPLs. Treasury bills emerge as the most influential instrument, consistently showing a negative impact on NPLs. Lending rates display a complex relationship, initially reducing NPLs but eventually contributing to their increase in the long run. The real effective exchange rate shows a positive relationship with NPLs, indicating that currency depreciation leads to increased NPLs. Broad money supply exhibits a slight but growing negative impact on NPLs. These findings indicate a complex relationship between monetary policy and NPLs in Nigeria, suggesting the need for the monetary authority to adopt a dynamic approach to monetary policy, considering the impacts of the various monetary policy instruments on NPLs, in the immediate and long-term.},
keywords = {monetary policy, non-performing loans, Structural VAR JEL Classification: E52, G21, C32},
month = {November},
}