BANK HETEROGENEITY AND THE TRANSMISSION OF MONETARY POLICY IN NIGERIA: A CREDIT AGGREGATE PERSPECTIVE

Abstract

This study employs a one-step system Generalized Method of Moments (GMM) estimator within a dynamic panel framework to analyze how bank-specific attributes, namely, asset size and liquidity ratio, condition credit responses to monetary policy instruments. The findings reveal significant persistence in bank credit supply and confirm the effectiveness of monetary policy tools such as the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) in curbing credit expansion. However, the impact is asymmetric: smaller and less liquid banks exhibit greater sensitivity to monetary tightening, while larger banks demonstrate resilience due to stronger balance sheets and liquidity buffers. Interaction terms further suggest that heterogeneity shapes the credit transmission pathway, moderating the effects of monetary policy. The study highlights the necessity for policy design that reflects institutional diversity within the banking sector, emphasizing that tailored interventions may enhance monetary effectiveness and financial system stability in Nigeria.