EFFECT OF LIQUIDITY RISK ON THE FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study investigates the effect of liquidity risk on the performance of listed deposit money banks in Nigeria. The research adopts ex post facto research design. The target population comprised of the 13 deposit money banks listed on the Nigeria Exchange Limited (NGX) between 2006 - 2021. Secondary data was collected from the audited annual reports of the listed deposit money banks and the Central Bank of Nigeria. The study measure liquidity using loan-to-deposit-ratio, loan to assets ratio, and cash reserve ratio on the financial performance of listed deposit money banks in Nigeria. The study measured financial performance using return on equity (ROE) while panel data analysis technique and OLS method was used to analyse the data with the aid of STATA Version 15. The result of the study revealed that, loan to asset ratio and cash reserve ratio have significant positive effect on return on equity of listed deposit money banks in the long-run and short-run. However, loan-to-deposit-ratio was not significant. The study concluded that loan to asset ratio and cash reserve ratio had a positive and significant effect on the financial performance of listed deposit money banks in Nigeria. Amongst others, the study recommended that, listed deposit money banks should identify and maintain optimal levels of cash reserve to gauge against unanticipated medium to long-term liquidity funding to maximize their profitability.