Liquidity Management and Commercial Banks' Profitability in Nigeria

Abstract

This study examined liquidity management and commercial banks' profitability in Nigeria. The major aims of the study were to find empirical evidence of the degree to which effective liquidity management affects profitability in commercial banks and how commercial banks can enhance their liquidity and profitability positions. Considering the nature of the survey, quantitative methods of research were applied. In attempt to achieve the objectives of the study, several findings were made through the analysis of both the structured and unstructured questionnaire on the management of banks and the financial reports of the sampled banks. The data obtained from the Primary and Secondary sources were analyzed through collection, sorting and grouping of the data in tables of percentages and frequency distribution. We formulated a hypothesis, which were statistically tested through Pearson correlation data analysis. Findings from the testing of this hypothesis indicate that there is significant relationship between liquidity and profitability. That means profitability in commercial banks is significantly influenced by liquidity and vice versa. The study concluded that for the success of operations and survival, commercial banks should not compromise efficient and effective liquidity management and that both illiquidity and excess liquidity are "financial diseases" that can easily erode the profit base of a bank as they affect bank's attempt to attain high profitability-level. Finally the study recommends): The Central Bank should be encourage maintaining a flexible Minimum Monetary Policy [MPR] or discount rate so as to enable the commercial banks take advantage of the alternative measures of meeting the unexpected withdrawal demands, and reduce the tendency of maintaining excess idle cash at expense of profitability, the monetary authority should as a matter of urgency encourage and legitimate the use of credit cards and enforce cheque usage for huge amounts in the day to day business transaction, finally , interested researchers should dwell on the same area of this research extensively using a wider data and area of coverage.

Key words: Liquidity Management, Profitability, Commercial Bank