Liquidity and financial performance of listed commercial Banks in Nigeria

Abstract

Liquidity and profitability are two important concepts in business especially in commercial banking which require a delicate balance for the firm to effectively achieve its goal of meeting various stakeholder expectation as well as achieve sustainable growth. The focus of the study is to analyse the relationship between liquidity and financial performance of listed commercial banks in Nigeria. The scope of the study is 2010-2022 period and a sample of nine out of the fourteen listed commercial banks as at 2022 was used. Data for liquidity and financial performance collected from the audited published annual reports of all nine banks for all the years in the study period, obtained from their respective websites. Liquidity is the independent variable measured by Current Ratio (CUR), Cash Ratio (CAR) and Liquid Asset Ratio (LAR) while financial performance as the dependent variable was represented by profitability, proxied by Operating Profit Margin (OPM) and Earning Per Share (EPS). Averaged cross-sectional analysis model was adopted using Multivariate Analysis of Variance (MANOVA) and Pearson correlation in IBM SPSS Statistics 20.  Results of analysis showed that both OPM and EPS correlate negatively with CUR, CAR and LAR. While the relationship of liquidity measures with OPM is not statistically significant, the relationship with EPS is very significant. It is recommended that managers of commercial banks should pay attention to EPS ratios in evaluating the trade-off between liquidity and profitability