Effect of Liquidity on Financial Performance of Deposit Money Banks in Nigeria

Abstract

This study appraised effect of liquidity on financial performance of deposit money banks in Nigeria. A sample of five (5) banks was used for the study. Secondary data were collected from the firms for ten years period, 2007 - 2016. The data were analyzed using multiple regression analysis. Results show that Liquidity has positive and significant effect on banks’ profitability ratios and that liquidity also has positive and significant effect on Return on Capital Employed.  The study recommends that there is need to replace being practiced in the advance economies of the world. Investing on human capital may be beyond just employees but also frequently creating an interactive forum where bank clients could be sensitize on a variety of activities they indulge in that are capable of hindering effective liquidity management,  need to invest on human capital by banks as it offers the highest returns in terms of increasing performance and it also enhances the level of competence of the employee and that the regulatory authorities should put in place appropriate policy with compliance measures to check high volume cash transaction and cash hoarding prevalent in the economy. The Central Bank of Nigeria must critically review and follow-up or monitor the effectiveness of liquidity policy tools in banks and where necessary, appropriate sanctions placed on erring banks to ensure effective implementation of these policy tools in an attempt to achieve desired liquidity level.

Keywords: Liquidity, Financial Performance, Profitability, Return on Assets,  Banks,  Nigeria.