Abstract
This study investigated the impact of liquidity risk on the profitability of listed Deposit Money Banks (DMBs) in Nigeria from 2015 to 2024, a period characterized by significant economic volatility and policy regime shifts. This study was anchored on the loanable fund?s theory, the theory of financial intermediation, and the trade-off theory. The variables of this study are liquid assets to total deposit ratio (LATDR) cash reserve ratio (CRR) and net interest margin (NIM). Utilizing an ex-post facto research design, a census sampling of all thirteen listed DMBs was employed, resulting in a balanced panel of 130 bank-year observations. Data were analyzed using the fixed effects regression model, with diagnostics confirming the model's robustness. The finding showed a statistically significant negative relationship between liquidity proxies and profitability. Specifically, a 1% increase in LATDR and CRR led to a 0.167% and 0.086% decrease in NIM, respectively. This indicated that internal liquidity management (LATDR) exerts a more pronounced drag on profitability than the external regulatory requirement (CRR). This study concluded that a significant trade-off exists between liquidity management and profitability in the Nigerian banking sector. This study recommended that bank managers strategically optimize their liquidity buffers rather than merely hoarding liquid assets, and that regulators should consider the profitability implications of aggressive CRR policies to foster a stable yet growth-conducive banking environment.
Keywords
Cash Reserve Ratio, Deposit Money Banks, Liquidity Risk, Nigerian Banks, Net Interest Margin, Profitability
Citations
IRE Journals:
Edoka, Nkoli Ernestina, Prof. Wilfred Iyiegbuniwe, Prof. Adamu "Liquidity Risk and Profitability of Listed Deposit Money Banks in Nigeria" Iconic Research And Engineering Journals Volume 9 Issue 7 2026 Page 1687-1702 https://doi.org/10.64388/IREV9I7-1713798
IEEE:
Edoka, Nkoli Ernestina, Prof. Wilfred Iyiegbuniwe, Prof. Adamu
"Liquidity Risk and Profitability of Listed Deposit Money Banks in Nigeria" Iconic Research And Engineering Journals, 9(7) https://doi.org/10.64388/IREV9I7-1713798
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