Liquidity Risk Management and Its Impact on Bank Financial Performance (Published)
This study examined the effect of liquidity risk management on the efficiency and productivity of Nigerian commercial banks. Using a panel data technique, which involves collecting performance data over a long period of time, this research work was able to compile its data. Liquid asset ratios, loan-to-deposits, and net interest margins are indications of liquidity risk, whereas return on assets (ROA), return on equity (ROE), and net interest margins are financial performance metrics for commercial banks. The amount and sufficiency of a bank’s capital, as well as the macroeconomic features of GDP growth and inflation rates, are additional control variables. Researchers used descriptive statistics, correlation analysis, and a panel regression approach with a fixed-effect estimation method and a random effect to examine the relationship between liquidity risk indicators and bank performance. Their findings were confirmed by the Hausman test. Nevertheless, the nature and strength of the correlation between these two factors were different. As the quality of a bank’s assets declines due to excessive lending, the positive association between profitability and loan-to-deposit ratio only holds up to a point. The opportunity cost of holding low-yielding liquid assets causes a negative correlation between liquidity and performance. The beneficial impact of liquidity management on performance may be magnified with sufficient capital holdings. In its last section, the report proposes several research goals for the future.
Keywords: Liquidity risk, Loan to Deposit Ratio, Return on Assets, Return on Equity, capital adequacy, financial performance of banks, liquidity risk management, panel data regression
Impact of CBN Cash Reserves Requirement on the Financial Performance of Deposit Money Banks in Nigeria (Published)
This study investigates the impact of the Central Bank of Nigeria’s (CBN) Cash Reserve Requirement (CRR) on the financial performance of Deposit Money Banks (DMBs) in Nigeria, focusing on Return on Assets (ROA), Return on Equity (ROE), Liquidity Rate (LR), and Loan-to-Deposit Ratio (LDR). Anchored in Monetary Theory and Resource Dependence Theory, the study employs an ex-post facto research design and utilizes secondary data from 2018 to 2023. Descriptive statistics, correlation analysis, and simple regression analysis were applied to examine the relationships between CRR and the performance metrics. Findings reveal that CRR significantly influences all four metrics, demonstrating a strong positive relationship with ROA, ROE, LR, and LDR. These results highlight the dual role of CRR in promoting financial stability and influencing operational strategies in the banking sector. The study concludes that while CRR enhances regulatory compliance and liquidity, it also imposes constraints on lending and profitability, necessitating adaptive strategies by banks. Policymakers are advised to balance CRR adjustments to optimize liquidity control and profitability, ensuring alignment with Nigeria’s economic development goals.
Keywords: Deposit Money Banks, Financial Performance, Loan to Deposit Ratio, Return on Assets, Return on Equity, cash reserve requirement, liquidity rate
Determinants of Loan Loss Provisions of Commercial Banks in Nepal (Published)
This study aims to derive determinants of loan loss provisions (LLPs) of commercial banks in Nepal using pooled data of ten commercial banks with the 50 observations over the period of 2012/13 to 2016/17. The descriptive and causal comparative research designs have been adopted for the study. The need for this research is due to failures in the loan loss provisioning practices which resulted in loan loss provisions (LLP) not reflecting on collectability of the defaulted loans. As a consequence, the banks do not capture their loss expectations and do not continuously reassess their loss expectations as the conditions affecting their borrowers may change. The study has been used loan loss provision on total assets as dependent variables and natural logarithm of total assets, total loan to total assets ratio, nonperforming loan to total assets ratio, earnings before taxes and provisions to total assets, capital adequacy ratio, loan to deposit ratio taken as independent variables. The estimated regression model reveals that nonperforming loan ratio (NPL) and loan to deposit ratio are significant positive impact of loan loss provisions. This study concluded that nonperforming loan ratio (NPL) and loan to deposit ratio are the mainly determinants of loan loss provisions of commercial banks in Nepal.
Keywords: Capital Adequacy Ratio, Earnings Before Taxes, Loan Loss Provisions, Loan to Deposit Ratio, Nonperforming Loan, Provisions, Total Assets