European Journal of Accounting, Finance and Investment

Liquidity And Asset Quality Management: Evidence From Listed Deposit Money Banks In Nigeria

Onaolapo Adekunle Abdulrahman

Department of Management and Accounting, Ladoke Akintola University of Technology, Ogbomoso, Oyo State, Nigeria

Adegoke Kolawole A

Department of Banking and Finance, Achievers University, Owo, Ondo State, Nigeria.

Keywords: Liquidity Management, Asset Quality, Total Loans, Total Deposit, Cash and Short Term Fund, Deposit Money Banks

---

Abstract

The study examines the relationship between liquidity management and asset quality of listed Deposit Money Banks (DMBs) in Nigeria. Ex post facto research design was used for the study. Secondary data were sourced from audited annual reports of fourteen (14) listed DMBs, Nigeria Deposit Insurance Corporation (NDIC) and Nigeria Stocks Exchange (NSE). The data were analyzed using panel data regression analysis. Time series annual data for sixteen (16) years spanning 2005-2020 were used for the study. Data on liquidity management and asset quality were proxies with short-term fund to total deposit (CSD) and loans to total deposit (LTD) respectively. Findings showed that the ratio of total loan to total deposit (LTD), ratio of cash and short-term fund to total deposit (CSD) and bank size (BSZ) positively and negatively influenced the returns on investment (ROI) of DMBs under investigation. It was concluded from the study that, liquidity management (LIM) has both positive and negative relationship with asset quality (ASQ) of the DMBs. The study therefore recommends that management of banks should comply with regulations guiding lending and credit administration to avoid the increasing incidence of nonperforming loans. Also, the regulatory authorities without bias, should regularly access the lending behavior of the banking industry, by ensuring that credit policies are strictly integrated with liquidity and profitability objectives of the DMBs.