Liquidity Risk Management and the Performance of Deposit Money Banks in Nigeria (2011-2017)

Abstract

This study examined the impact of liquidity risk management on financial performance of selected Deposit Money Banks (DMBs) in Nigeria for the period 2011-2017. Using ex-post facto research design, annual time series data was obtained from the annual reports and accounts of 10 DMBs. Panel data regression was used for data analysis. From the findings, funding risk has a negative and significant relationship with return on asset. However, financing cost reported an insignificant positive relationship with return on assets. Interest coverage ratio has a negative and significant relationship with return on assets. However, capital adequacy ratio has a positive and significant relationship with return on assets but loan loss provision shows a negative and insignificant relationship with return on asset. Similarly, non-performing loan has a negative effect on banks’ return on assets. The study, thus concludes that there exists a significant and negative relationship between liquidity risk management (funding risk, interest coverage ratio and non-performing loan) and banks performance (ROA). It is, therefore, recommended that the regulator of DMBs should be cautious about increasing the minimum liquidity ratio as this would adversely affect their financial performance. Nigerian DMBs should increase the amount of core capital since capital adequacy was noted to have a positive and significant effect on financial performance.