Liquidity Management And Commercial Banks’ Performance In Nigeria (An Auto-Regressive Distributed Lag Ardl Model Approach)

Abstract

The liquidity position of any business is vital to its growth and profitability as it is what guarantees smooth day-to-day activities. It is the life wire of the financial system and the banking system in particular. Commercial banks must hold optimal liquidity to meet up their maturing obligations. This study sought to analyze the impact of liquidity management on commercial bank performance. The Data set was generated from the Central Bank of Nigeria Statistical Bulletin of 2019. Total Assets of Commercial Banks in Nigeria served as a proxy for Banks performance in Nigeria while the Liquidity Ratio, Cash Reserve Ratio, and Loan-to-Deposit Ratio were adopted as independent variables. The Auto-Regressive Distributed Lag (ARDL) Model was used for estimation and inference drawn from there. Various diagnostic tests, including Test of Normality, Autocorrelation test, Heteroskedasticity test, and the Breusch-Godfrey Serial Correlation LM test, were carried out to confirm the reliability and validity of obtained results. Our findings confirm the significant impact that Liquidity management has on Nigerian Commercial Bank performance. The study recommended that commercial banks in Nigeria must maintain optimal liquidity to meet day-to-day liquidity demands.