Effect of Liquidity Risk Management on the Financial Performance of Deposit Money Banks in Nigeria

Abstract

The study examined the effect of Liquidity Risk on Financial Performance of Selected deposit money banks in Nigeria. The researchers sought to primarily evaluate effect of liquidity risk on financial performance of selected deposit money banks in Nigeria. The ex-post facto research design was used for this study. This work employed three (3) variables; Net operating profit margin (NOPM) for dependent variables and Non-performing loans (NPLs) and Leverage ratio (LEV) for independent variables. The period for this study was ten (10) years from 2010 – 2019. The model estimation was executed using ordinary least squares technique. The results suggest that non-performing loans have positive relationship with net operating profit margin (NOPM), while leverage ratio have negative relationship with net operating profit margin (NOPM) of selected deposit money banks. Generally, 94.24% of the variation in dependent variable were caused by change on the independent variables used for this study. The research concluded that non-performing loans have significant effect on net operating profit margin (NOPM); leverage ratio have no significant effect on net operating profit margin (NOPM). The work recommended that banks should establish the required cash in each product segment and maintain the optional level which will help in reducing the cash balance level and increase their customer deposit base through making the product accessible to more customers especially the low-income earners. At the same time, banks should consider targeting the corporate clients who will be willing to retain a large cash base in the banks for a longer duration.