Empirical review

The study is carried out to demonstrate the effect of monetary policy tools on the financial
performance of commercial banks. The main aim of this paper is to find out the effect of
monetary policy on the financial performance of commercial banks. All these studies
supported that various monetary tools affect commercial banks’ financial performance.

Ayodele (2014), investigated how various macroeconomic variables such as interest rate,
liquidity ratio, money supply, and commercial bank loans and advances affect commercial
bank lending. In this study, there has been employment of secondary data and a time series
analysis from the period of 1998-2008, which has been obtained from sources of the
Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). In this study,
there has been the use of inferential analysis with the adoption of the Augmented Dickey
fuller (ADF) test for units, and the co-integrated test is conducted through the Johansen
cointegration test to determine whether there exists long-run relationship exist between the
variables.

To reconcile the short-run behavior, an error correction model (ECM) has been used to
determine the correct prediction connection between monetary policy and commercial
banks’ loans and advances. In this study, a cointegration test was carried out to confirm
and determine whether there exists a long-run relationship among the variables. The
Johansen co-integration test revealed that there exists a long-run relationship between
Commercial loans and advances. This paper has concluded that there have been possible
effects of monetary policy on commercial bank lending in Nigeria. The analysis was done
using the Bank lending channel mechanism model, Loan pricing theory, and multiple
lending theory as the theoretical framework that incorporates the role of monetary policy.
The study has shown that using the error correction mechanism of the ordinary least
squares regression technique, efforts of monetary policy at influencing the volume of
commercial banks loan and advances in Nigeria through exchange rates and money supply
do not influence the volume of commercial bank loans and advances.

Rawat (2014), The study has investigated that CRR& SLR has a significant impact on loans
and advances. For the purpose of carrying out the research study, there has been the
formulation of 3 hypotheses and each hypothesis depicts the impact of CRR, SLR, and
investments on loans and advances. The research design adopted for this study is that all
the data are primarily collected. The data after the collection presents the impact of CRR
&SLR on loans &advances and investment of SBI. The overall analysis shows that there
is a significant impact of the Cash reserve ratio and statutory reserve ratio on loans and
advances and impacts of investment on loans and advances.

Akomolafe, Danladi, Babalola, & Abah (2015) investigated the impact of monetary policy
on commercial banks’ performance in Nigeria in a micro-panel analysis. Interest rate and
money supply were used as a core basis in order to explain the detailed effects of monetary
policy tools whereas profit before tax (PBT) was used in order to represent commercial
banks’ performance. For the purpose of carrying out the research pooled regression, fixed
effect regression, and random effect regression were adopted in order to obtain a detailed
analysis of the study. Hausman’s test concluded that fixed effect regression was most
desirable in order to carry out the detailed study. An overall analysis of the study concluded
that there is a positive relationship between banks’ profits and monetary policies as
concluded from money supply and interest rates. At 1% and 5% interest rate was not
statistically significant. From the overall analysis of the study, it has been concluded that
interest rate policy is needed to be carefully analyzed by the monetary authority so that
there will be great loan advancement in the country. For the purpose of carrying out the
study, there has been taken of data from 10 years of records for five banks.

The relevant data obtaining data has been collected from the annual statement of the bank
whereas the data related to the monetary policy has been taken from the CBN statistical
Bulletin (2014). For the purpose of carrying out the relevant information, there has been
done of pooled regression, fixed effect regression, random effect method, and the Hausman
test. The analysis of fixed effect, regression shows that there is a positive relationship
between banks’ profit and money supply. From the overall analysis there came the
conclusion is that there has been a greater impact due to monetary policy. Monetary policy
greatly impacts the overall performance of the commercial bank. Profit before tax was used
in order to represent the financial performance of commercial banks. Capital adequacy and
management efficiency capture banks’ individual characteristics. Hausman’s test
concluded that fixed effect regression came to be most relevant in order to know the desired
result of the study. From the overall analysis, it came to know that there exists a positive
connection between the dependent variable and money supply, interest rate, and
management efficiency whereas capital adequacy shows that there is a negative effect on
banks’ profit. Overall findings gave the conclusion that interest rates have not always
become the main element in promoting banks’ profit in Nigeria. This came to the
conclusion that the Interest rate in Nigeria has not made loan advancement important in the
country. A negative effect of capital adequacy is also taken into the consideration in a way
that banks in Nigeria do not manage their capital properly. From the overall study, it has
been recommended that interest rate policy should be carefully analyzed by the monetary
authority so that there will be great loan advancement. This process leads the significant
profit for the bank. Banks should also ensure that capital is to be properly utilized so that
there will be loan advancement in the country.

Nikhil & Deene (2021), investigated the impact of monetary policy tools on the
performance of banks in India. This study it gives the most valuable feedback to the
regulators in structuring the most appropriate interest rates so that they could meet the
macroeconomic objectives of the Indian economy. The methodology adopted for the study
is descriptive and analytical types of research. The adoption of correlation and regression
analysis determines the relationship between bank rate (BR) and the performance of the
public sector in India. The sample selected for the study is the public sector banks that are
actively performing in India. The overall performance has been measured by taking three
factors, and hence they are loans, deposits and advances, and the total asset value of the
banks. All the factors have shown a significant impact on BR over five years. However,
loans and advances have shown less impact on the overall performance of banking sectors.
So due to this, it can be regarded that there has been a great fluctuation in BR which will
bring flexibility to the overall banking system. And hence that will lead to the effective
performance of the economy and so do central bank concentrate on the macroeconomic
situation of the country.

This paper gives valuable guidelines to the central bank, researchers, and financial
institutions in order to look into the financial performance and monetary policy rates. This
paper shows the problems faced by commercial banks due to monetary policy. This study
highlights the impacts that monetary policy will have on the financial performance of the
banks. The research design most adopted in this study is of descriptive and analytical types.
In this research correlation and regression also have been adopted so that it will show the
relationship between BR and the performance of public sector banks in India. The
population selected for the overall study are the operating commercial banks in India which
include public, private, and nationalized banks. For the purpose of carrying out the
research, the data have been collected from secondary sources. The data have been
collected from the website of the Reserve bank of India. The crucial monetary rate has a
significant impact on the overall performance of the public sector in India. Because of the
fluctuation in BR, there has been flexibility in the banking system, and hence due to this,
they can perform well in the economy. Proper planning and timings play an important role
in framing policies based on the economic conditions of the country.