Profitability and Liquidity Management of Deposit Money Banks in Nigeria.

Abstract

The banking industry in Nigeria is quite competitive and the number of players in the Banking industry is relatively large. This makes the firms in the sector to continually create, implement, assess and improve on strategies so as to increase its profitability rate and have a sound liquidity management. In view of this, this study examined the profitability and liquidity management of deposit money banks in Nigeria using data for the period 1991 to 2020 and the Autoregressive Distributed Lag (ARDL) bounds testing approach. The study made use of Returns on assets and returns on equity as the dependent variable, interest rate, inflation rate, minimum rediscount rate, liquidity ratio, cash reserve ratio, and monetary policy rate as independent variables. The results indicated that profitability as a result of returns on assets and returns on equity is stable. It also shows that the coefficient of the intercept is positively signed and statistically significant and a unit increase in returns on assets and returns on equity variables would lead to a 14.01273 increase in the bank profitability. Furthermore, all the variables are also statistically significant with INT, CRR, MDR, LR, and MPR having a positive relationship with returns on assets and returns on equity while INF have negative relationship. Based on the results obtained, the study recommended that more areas of reforms that will help qualify more Nigerian banks for profitability should be given adequate attention