Effect of Liquidity Management on the Financial Performance of Banks in Nigeria

Abstract

This study examines the effect of liquidity management on financial performance of banks in Nigeria for the period 2010 to 2018.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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