Money Market Instruments and Performance of Deposit Money Banks In Nigeria

This study examines money market instruments and performance of deposit money banks in Nigeria from 1999 to 2024. Specifically, the study investigates the effects of Treasury Bills, Treasury Certificates, and Commercial Papers on the return on assets (ROA) of deposit money banks. The study adopts an ex-post facto research design and utilizes annual time-series data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and the Nigeria Deposit Insurance Corporation (NDIC). The Autoregressive Distributed Lag (ARDL) technique is employed to analyze both short-run and long-run dynamics among the variables. Empirical results revealed that Treasury Bills exert a positive and statistically significant effect on ROA in the short run, indicating their relevance as a low-risk income-generating investment for banks. Treasury Certificates exhibit a positive but statistically insignificant effect on ROA, suggesting limited contribution to short-term bank profitability. Commercial Papers also show a positive but insignificant relationship with ROA, reflecting their relatively marginal role in enhancing bank performance during the study period. Overall, the findings indicate that while certain money market instruments support bank performance, their aggregate effect on deposit money banks’ profitability remains weak. The study concludes that investment decisions in money market instruments must be guided by their risk–return characteristics and liquidity implications. It recommends that deposit money banks prioritize Treasury Bills as part of their asset portfolio, reassess their exposure to Treasury Certificates, and exercise caution in commercial paper investments pending clearer long-run profitability outcomes.