IIARD International Institute of Academic Research and Development

IIARD International Journal of Economics and Business Management (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 10 NO. 11 2024
DOI: 10.56201/ijebm.v10.no11.2024.pg250.263

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Liquidity Problems and Performance of the Nigeria Deposit Money Banks

Andrew EO Erhijakpor, PhD

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Abstract

The study examined the extent to which liquidity problem impacted deposit money bank performance. This study adopts an ex-post facto research design since it relies on historical data. The study utilizes secondary data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin for the period 2008 to 2023. This source provides reliable and consistent financial indicators relevant to the Nigerian banking sector. The population of this study consists of all deposit money banks operating in Nigeria. However, the study focuses on the banking sector as a whole rather than individual banks. The study involves one dependent variable and four independent variables, defined as follows: Return on Equity (RETE). Independent variables: liquidity ratio (LIQR), cash reserve ratio (CASR), non-performing loans (NOPLs) and loan-to- deposit ratio (LOAR). The study employs time series econometric techniques, including: descriptive statistics, correlation test, multicollinearity test (variance inflation factor - VIF), heteroskedasticity test (Breusch-Pagan test) and ordinary least squares (OLS) to assess the impact of liquidity variables on return on equity. The test was carried out with econometric views version 9.0. The OLS results show that, LIQR has a positive but not significant effect on RETE. CASR has negative and non-substantial effect on RETE. NOPLs show positive but non substantial effect, LOAR shows adverse but substantial effect. From all indications, LIQR and NOPLs has constructive relationship to RETE. Whereas, CASR and LOAR has adverse relationship with RETE. Although at 5% level of significance only LOAR scaled through. the study concludes that effective loan management is critical in enhancing bank profitability, as excessive loan issuance relative to deposits negatively impacts return on equity. The study recommends: optimize loan-to- deposit ratio; improve credit risk management; review liquidity and cash reserve strate

keywords:

Liquidity, Problems, Loans, Ratio, Reserve

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