EFFECT OF LIQUIDITY MANAGEMNET ON FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA
Abstract
ABSTRACT
This study examines the effect of liquidity management on financial performance of banks in
Nigeria for the period 2017 to 2021. The study uses secondary data from five banks listed bank
on the stock exchange in Nigeria. The proxies employ for liquidity management are; Liquidity
ratio (LQR), Loan to deposit ratio (LDR), Cash reserve ratio (CRR) and deposit ratio (DR),
while return on assets (ROA), return on equity (ROE) and return on net interest margin (NIM)
are proxies for financial performance (Profitability). The study uses panel regression analysis in
estimating the model and Hausman test while making a choice between fixed effect and random
effect model. The study finds that liquidity ratio (LQR) have positive and significant effect on
financial performance of DMB as measured by return on assets (ROA), return on equity (ROE)
and net interest margin(NIM).It therefore recommends that banks in Nigeria should establish
sound governance and risk management systems by developing strategies, policies for liquidity
management that is well integrated into its risk management practices as well as establish a
contingency funding plan to address any liquidity shortfall during periods of stress or emergency
while ensuring that active monitoring liquidity funding needs to avert any liquidity challenge
that could trigger crisis in the banks is promptly addressed.
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