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Effect of Liquidity Management on Banks Profitability

Author

Listed:
  • John Ayodele Ajayi

    (Faculty of Management Sciences, Department of Finance,University of Lagos, Akoka, Nigeria)

  • Qudus Adekunle Lawal

Abstract

Liquidity management and profitability are very important issues in the growth and survival of businesses including financial institutions and the ability to handle trade-off between the two is a source of concern for financial managers. Hence, this research examines the relationship between liquidity management and bank performance using secondary data from the published annual reports of five (5) sampled Deposit Money Banks in Nigeria for a period of ten years (2009-2018). The proxies for liquidity management include loan to deposit ratio, loan to assets ratio, liquid ratio, while return on assets was the proxy for profitability. Data was analyzed using Auto Regressive Distributed Lag (ARDL) and results from the study showed that there is a negative and significant relationship between loan to deposit ratio with p-value 0.0021 and return on assets (ROA), a positive and significant relationship between loan to asset ratio with p-value 0.0005 and return on assets (ROA) and a positive and insignificant relationship between liquid ratio with p-value 0.1808 and return on assets (ROA). The study concludes that, there is a significant and positive relationship between liquidity management and profitability of banks in Nigeria. It is recommended that banks should always endeavour to administer their credits effectively by adhering strictly to rules on granting of credit.

Suggested Citation

  • John Ayodele Ajayi & Qudus Adekunle Lawal, 2021. "Effect of Liquidity Management on Banks Profitability," Business & Management Compass, University of Economics Varna, issue 2, pages 220-237.
    • Handle: RePEc:vrn:journl:y:2021:i:2:p:220-237
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    References listed on IDEAS

    as
    1. Peter Ego Ayunku, 2017. "An Evaluation of Liquidity Management and Banks Performance in Nigeria: A Correlation Matrix Approach," Noble International Journal of Business and Management Research, Noble Academic Publsiher, vol. 1(8), pages 123-128, August.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Liquidity; Profitability; Banks; Nigeria; Autoregressive Distributed Lag;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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