Impact of Liquidity Management on Return on Equity of Selected Deposit Money Banks in Nigeria (2004 -2017)
- January 30, 2021
- Posted by: RSIS Team
- Categories: Accounting, IJRIAS
International Journal of Research and Innovation in Applied Science (IJRIAS) | Volume VI, Issue I, January 2021 | ISSN 2454–6186
Dr. Abolade Francis AKINTOLA1, Dr. Samuel Adebayo OLAOYE2, Dr. Pius Okafor ONICHABOR3
1Department of Finance, Babcock University, Ilishan – Remo Ogun state, Nigeria
2Department of Accounting, Babcock University, Ilishan – Remo, Ogun State, Nigeria.
3Department of Accounting & Finance, Mountain Top University, Ibafo,Ogun State , Nigeria
Abstract:- The study investigated liquidity management and return on equity of selected deposit money banks in Nigeria from 2004 to 2017. Data obtained for the study were obtained from secondary source while eleven (11) deposit money banks were selected for the study.
Data gathered were analyzed using ordinary least square (OLS) to examine the magnitude and significance of the relationship and the research variables.
Result of the regression analysis shows that both current ratio (CU) and operating cashflow (OCR) have positive effect on return on equity of selected deposit money banks in Nigeria. While both debt ratio (DBR) and loan deposit ratio (LDR) have negative effect. It can therefore be concluded that liquidity management has insignificant effect on return of equity of deposit money banks in Nigeria.
The study therefore recommends stringent penalty for any bank who fails to meet minimum liquidity ratio sets by the regulatory authorities.
Keywords: Liquidity management, return on equity, current ratio, operating cashflow, deposit money banks.
1.0 Introduction
Liquidity and profitability are twin elements necessary for the survival and growth of deposit money banks in any part of the world. Importance of liquidity management as it affects corporate profitability in banking business cannot be over emphasised.
Liquidity in the commercial bank represents the ability to pay its obligations by the contractor at the time of maturity which includes lending and investment commitments, withdrawals, deposits, and accrued liabilities (Amengor, 2010). Liquidity also means the ability to finance the increase in assets and meet liabilities when they due fall without any unexpected losses, and so the efficient management of liquidity in the bank help to make sure that the bank is able to meet the incurred cash, which are usually uncertain and subject to external factors and to the behaviour of other agents (Muhammad & Muhammad, 2017). Liquidity should neither be excessive nor inadequate. Excessive liquidity means bank has idle funds. This will reduce profitability. On the other side, where liquidity is inadequate, this will interrupt business operations. This means that proper balance between liquidity and profitability should be maintained by any bank for efficient operation of the business.
