Liquidity Management and the Financial Performance of Deposit Money Banks in Nigeria
No Thumbnail Available
Date
2024-12
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Lead City University, Ibadan
Abstract
Nigerian DMBs struggle to maintain stability and growth. A major challenge is effective liquidity management, which is crucial for improved performance. This study examines the impact of liquidity management on the financial performance of Deposit Money Banks (DMBs) in Nigeria. Utilizing an ex-post facto design, the research analyzed 10 years of annual reports from eight listed DMBs with international authorization licenses, yielding 80 observations. Multiple regression analysis was conducted using the OLS approach via E-VIEW software. Key findings reveal that Cash Flow Coverage (CFC) significantly negatively impacts Net Interest Margin (NIM) (R² = 0.74863, p < 0.05) but has insignificant effects on Earnings Per Share (EPS) (R² = 0.122659, p > 0.05) and Bank Efficiency (BE) (R² = 0.309693, p < 0.05). Capital Adequacy Ratio (CAR) significantly positively influences EPS (R² = 0.210055, p < 0.05) and BE (R² = 0.065635, p < 0.05) but has an insignificant positive effect on NIM (R² = 0.718218, p < 0.05). Loan-to-Asset Ratio (LAR) significantly positively affects EPS (R² = 0.056559, p < 0.05) but has insignificant positive effects on NIM (R² = 0.720110, p < 0.05) and BE (R² = 0.306720, p < 0.05). Loan-to-Deposit Ratio (LDR) significantly positively impacts BE (R² = 0.344147, p < 0.05) but has insignificant effects on NIM (R² = 0.716810, p < 0.05) and EPS (R² = 0.000565, p > 0.05). The study concludes that effective liquidity management is crucial for DMBs' financial performance. This emphasize the
interconnectedness of liquidity metrics (CFC, CAR, LAR, LDR) in influencing financial performance. Each metric plays a distinct role, affecting NIM, EPS, and BE. This underscores the need for a profound liquidity management approach that considers the interplay between these factors. Recommendations include optimizing cash flow coverage, maintaining higher capital adequacy ratios, responsible loan portfolio management, and balancing loan-to-deposit ratios for improved operational efficiency and profitability.
Keywords: Liquidity Management, Financial Performance, Cash Flow Coverage, Capital Adequacy Ratio (CAR), Loan-to-Asset Ratio (LAR) Loan-to-Deposit Ratio (LDR)
Word Count: 300
Description
Keywords
Liquidity Management, Financial Performance, Cash Flow Coverage, Capital Adequacy Ratio (CAR), Loan-to-Asset Ratio (LAR) Loan-to-Deposit Ratio (LDR)
Citation
Kate Turabia