– Impact of Liquidity on the Performance of Commercial Banks in Nigeria (2000-2015) –
Download Impact of Liquidity on the Performance of Commercial Banks in Nigeria (2000-2015) project materials: This project material is ready for students who are in need of it to aid their research.
ABSTRACT
This study examined the impact of liquidity on the performance of commercial banks in Nigeria from 2000 to 2015. Profit before tax was used as proxy for the dependent variable while liquidity ratio (LQR), lending interest rate (INTR), and exchange rate (EXR) were used as proxies for explanatory variables. The study used descriptive statistics and Ordinary Least Squares (OLS) for data analysis.
The study finds that the liquidity ratio [2.43311] significantly affected profit before tax; lending interest rate on the other hand significantly [2.1924] affected profit before tax within the study period. The coefficient of determination (R2 = 0.4343) means that about 43% of the changes in the dependent variable was explained by the independent variables included in the model.
Based on the results and findings of the study, we recommend that: commercial banks should give priority to their liquidity ratio by the expansion of credit creation activities and reduction of high-risk off-balance sheet activities; commercial banks should further reduce their interest rate in order to attract more borrowers as this will increase their liquidity position as well as profitability
INTRODUCTION
Liquidity is a concept that many investors fail to take into account or understand and as a result their financial plans fail to come through in such critical times as retirement or college funding for a dependent. However, the fact is liquidity or a lack thereof it causes more than almost any other aspect of finance. People either lose money, which they needed in the short term because of improper investments or they find they have insufficient funds upon retirement because of years of investing in short term investments for a long-term goal (Central Bank of Barbados, 2008).
Businesses use a variety of to analyze the results of their actions. Investors perform a variety of calculations to review the actions of a particular company’s financial performance. Both company management and investors spend time focusing on the company’s liquidity to ascertain its level of financial performance. Certain financial ratios provide important information regarding a company’s liquidity, for example, bill payment.
The primary reason require attention involves the company’s ability to pay its bills. Liquidity ratios compare the current assets of a business to the current liabilities (Akhtar, 2007). Banks are germane to economic development through the financial services they provide. Their intermediation role can be said to be a catalyst for economic growth. The efficient and effective performance of the banking industry over time is an index of financial stability in any nation.
The extent to which a bank extends credit to the public for productive activities accelerates the pace of a and its long-term sustainability. The Nigerian banking industry has been strained by the deteriorating quality of its credit assets as a result of the indices, global oil prices, and sudden depreciation of the naira against global currencies (BGL Banking Report, 2010).
REFERENCES
Abel, C.and Kössl, M. (2008). The Impact of Working Capital Management on Cash Holdings: AQuantitative Study of Swedish Manufacturing SMEs, Mid Sweden University, Faculty of Human Sciences, Department of Social Sciences.
Acharya, V. and Naqvi, H. (2012). The seeds of a crisis: A theory of bank liquidity and risk taking over the business cycle. Journal of Financial Economics, 106(2), 349-366.
Akhtar, S. (2007). Pakistan: changing risk management paradigm perspective of the regulator, ACCA Conference CFOs: The Opportunities and Challenges Ahead, Karachi, 8; 23-29.
Alshatti, A.S. (2015). The effect of credit risk management on financial performance of the Jordanian commercial banks, Investment Management and Financial Innovations, Volume 12, Issue 1, 338 – 345.
Aremu, A. M. (2011). A perspective on liquidity and assets management of commercial banks in Nigeria: Evidence from some selected banks, Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 2(6): 454-460.
Bassey, G. E. and Moses, C. E. (2015). Bank profitability aand liquidity management: A case of elected Nigerian deposit money banks. International Journal of Economics, Commerce and Management; 3(4):1-24.
Benjamin, S. C. and Kamalavalli, A. L. (2006). Sensitivity of profitability to working capital management in Indian corporate hospitals. Eletronic copy avaible at HTTP://ssrn. com/abstract, 1331500.
BGL Banking Report (2010). Getting Banks to Lend Again. The Banker’s Magazine of July 2012, publication of The Financial Times Ltd., London.
Central Bank of Barbados (2008). Liquidity Risk Management Guideline, Bank Supervision Department, Central Bank of Barbados, Bridgetown.
Chaplin, G., Emblow, A. and Michael, I. (2000). Banking system liquidity: developments and issues, Financial Stability Review, 6; 93‐112.
Clementi, D. (2001). Financial markets: implications for financial stability, Banca D’Italia Conference on International Banking and Financial Systems Evolution and Stability, MCB University Press, Bradford, 11; 13‐19.
StudentsandScholarship Team.