Liquidity Risk Management and Financial Performance of Listed Commercial Banks in Nigeria

Abstract

The study investigates the relationship between liquidity risk management and financial performance of listed commercial banks in Nigeria. To achieve this, liquidity risk management proxies which have been widely used in the literature were employed namely deposit to total asset, total loan to deposit, liquidity asset to total asset and short-term liability to total asset ratios (independent variables) and a measure of financial performance return on asset (dependent variable). Ex-post facto research design was employed and panel data sourced from the yearly published annual reports and accounts of listed commercial banks in Nigeria. The fixed and random effects panel regression results reveal mixed evidence suggesting that the effect of liquidity risk management on financial performance of the listed commercial banks in Nigeria depends largely on measures of liquidity risk management used in this study. One key policy implication of this outcome is that maintaining a balanced lending and funding strategy is crucial for commercial banks. Hence, it recommends among others that managers of listed commercial banks in Nigeria should find an optimal balance that aligns with bank’s risk appetite and growth objectives and should also exercise caution in expanding lending.