EFFECT OF LIQUIDITY MANAGEMENT ON FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The hitches of inefficiency in the management of banks liquidity in Nigeria became obvious in the banking system. Despite the prudential guidelines by the Central Bank of Nigeria to rectify and stabilize the banks performance challenges that was predominant in the economy, yet the banks still face liquidation. However, the study examined the effect of liquidity management on the financial performance of quoted Deposit Money Banks (DMBs) in Nigeria. Specifically, the study sought to determine the effect of current ratio, operating cost ratio and capital adequacy ratio on return on assets of listed deposit money banks in Nigeria. Ex post Facto research design was adopted to carry out the research work. The study concentrated on the period from 2011 to 2020. The data was collected from the individual financial reports of the listed twelve (12) deposit money banks in Nigeria. With the aid of ordinary least square regression analysis, the panel data was analyzed and the result shows that operating cost ratio and capital adequacy ratio had a positive significant effect on return on assets. while current ratio had a negative insignificant effect on return on assets. The study recommended that managers of DMBs should manage their current ratio in order to prevent the banks from folding up, by keeping too much of cash idle. Also, due to the significant effect of operating cost ratio, the study recommends that managers of DMBs should increase the operating cost order to meet daily obligations with loans recovery and asset managements. Finally, the study recommends that DMBs should maintain their capital adequacy in order to reduce credit risk and ensure that they are protected against non-performing loan. Therefore, good capital adequacy, on the other hand, lead to lower poor credit in banks and hence greater profitability.