Optimal Liquidity Management and Financial Sector Performance in Nigeria 2010 – 2022

Abstract

Optimal Liquidity management is critical for maintaining financial stability and promoting credit availability in the financial sector thereby supporting economic growth and development of any nation. This study is a cross-sectional quasi experimental research design and it examined the effect of optimising liquidity management on financial sector performance in Nigeria. Secondary data were sourced from annual published financial reports of the deposit money banks that were selected for the purpose of this study. Return on equity (ROE) was used as proxy for the dependent variable, financial performance while deposit-to-asset ratio (DAR), cash-to-deposit ratio (CDR) and Loan-to-deposit ratio (LDR) were used to measure liquidity management which is the independent variable. Panel data ordinary least square was used to estimate the relationship between the residuals. The study results revealed that 84 percent variations in ROE of the banks were accounted for by the independent variables. Also DAR and CDR showed positive and insignificant relationships with ROE while LDR correlated with ROE positively and significantly. We recommend that management of the DMBs should pursue optimal and effective management of their liquidity in line with prudential guidelines so as to remain profitably in business.