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