INTEREST RATES AND RETURN ON EQUITY OF DEPOSIT MONEY BANKS IN NIGERIA (1990-2024)

This study investigated the effects of interest rates on return on equity of Deposit Money Banks in Nigeria between 1990 and 2024. Banking lending rate, bank deposit rate, treasury bills rate and monetary policy rate were the variants of interest rate considered and ROE of Nigerian banks was regressed on them. Data on these variables were collected from the World Bank and Central Bank of Nigeria (CBN) statistical bulletin for 2024. The Autoregressive Distributed Lag (ARDL) analytical technique was used for data analysis and results revealed that in the short run, bank lending rate and monetary policy rate have direct effects on ROE while bank deposit rate and treasury bills rate have inverse effects on ROE of banks. However, only the effect of monetary policy rate was insignificant. It was also revealed that there is a long run equilibrium relationship between interest rates and ROE of banks in Nigeria and the speed of adjustment in event of disequilibrium is 75.03% per annum. The study therefore inferred that interest rate has significant effects on return on equity of Deposit Money Banks in Nigeria. On this note, it was suggested that there is need for Deposit Money Banks to offer competitive and improved deposit rates which will attract more deposits from their customers; Deposit Money Banks should do well to reconsider their high lending rates so as to arrest the high incidence of loan default in the system and to increase the return of shareholders; the monetary authority in Nigeria should not allow Deposit Money Banks to keep excess reserves in order for prevailing monetary policy rates to be able to meet the goals they were made to meet; and there is need for another wave on interest rate deregulation so that lending and deposit rates can truly reflect the demand and supply of funds in the Nigerian banking system.