Liquidity Management and the Bank Operational Efficiency of Deposit Money Banks in Nigeria

Abstract

This study examines the relationship between liquidity management and bank operational efficiency of Deposit Money Banks (DMBs) in Nigeria. Utilising an ex-post facto design, the research analysed ten years of annual reports from eight listed DMBs with international authorisation licences, yielding eighty observations. Multiple regression analysis was conducted using the Ordinary Least Squares approach via E-VIEW software. Key findings reveal that Cash Flow Coverage (CFC) has an insignificant negative effect on Bank Efficiency (R² = 0.309693, p < 0.05). Capital Adequacy Ratio (CAR) significantly positively influences Bank Efficiency (R² = 0.065635, p < 0.05). Loan-to-Asset Ratio (LAR) has an insignificant positive effect on Bank Efficiency (R² = 0.306720, p < 0.05). Loan-to-Deposit Ratio (LDR) significantly positively impacts Bank Efficiency (R² = 0.344147, p < 0.05). The study concludes that effective liquidity management, particularly through optimal loan-to-deposit ratios and adequate capitalisation, is crucial for enhancing operational efficiency in Nigerian DMBs. Recommendations include optimising cash flow coverage without compromising operational effectiveness, maintaining robust capital adequacy ratios, responsible loan portfolio management, and balancing loan-to-deposit ratios for improved operational efficiency.