Evaluation of the Liquidity Management on Deposit Money Banks’ Performance in Nigeria

Abstract

This study examined the effect of liquidity management on banks' performance in Nigeria for the period of ten (10) years (2012-2021). This is necessitated to respond to the fact that some Deposit Money Banks in Nigeria have some time ago been declared technically insolvent as a result of poor liquidity management, therefore the study is poised to find empirical evidence of the degree to which effective liquidity management affects the profitability of Deposit Money Banks, and how these banks can enhance their liquidity and profitability positions. Four proxies for liquidity management (liquidity ratio, cash ratio, efficiency ratio and loan-to-deposit ratio) were regressed against Tobin's q using Fixed Panel Least Square method in the model estimation. Other preliminary tests carried out include the descriptive statistics test, Levin, Lin and Chu (LLC) unit root and the Hausman Specification tests. The findings of the study indicate that liquidity management and efficiency ratio have a positive and significant relationship with the performance of Deposit Money Banks in Nigeria. On the other hand, the Cash Ratio has a negative and insignificant relationship with the performance of Deposit Money banks in Nigeria. Based on the above findings, the study concludes that there is a significant positive relationship between liquidity management and bank performance in Nigeria. Finally, the study recommends that banks should embrace measures that will make certain or ensure effective liquidity management rather than directing attention, time and resources to the profit maximization concept only. This, therefore, indicate that banks should invest the available excess cash in shortterm instruments of the money market.