LIQUIDITY MANAGEMENT AND PERFORMANCE OF LISTED DEPOSIT MONEY BANKS (2008-2015)
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This study seeks to determine the effect of bank internal factors and macroeconomic factors on deposit money banks’ profitability as well as to ascertain the response of non-performing loans to macroeconomic shocks most especially oil price shock. The paper adopts the pooled multiple regression model using secondary panel data from the financial statements of 13 listed deposit money banks for the periods 2008 – 2015. The model incorporates Profit after tax (PAT) as proxy for profitability as the explained variable while capital ratio (CR), deposit to total assets (DTA), net interest margin (NIM), shareholders’ funds (SFND), earnings per share (EPS), broad money to total reserves (M2) and inflation (INFL) as explanatory variables. The study also adopted a Bayesian VAR model to ascertain the impulse response of NPL to macroeconomic shocks. Times series data on oil price, risk premium, GDP and inflation shocks were adopted. Result reveals that the effect of NPL on profitability is low however a persistent increase in NPL will affect profitability in the long run. Also NPL will affect the solvency of banks which denotes a long run effect and not significantly the current liquidity position of banks. Analysis of shocks in 2008-2009 revealed the short run significant effect of negative oil price shock on NPL although oil prices have not been the major determinant of persistent increase in NPL. The study also revealed a strong relationship between liquidity and profitability. In conclusion, the study has shown that the level of concentrations of banks to specific sectors (e.g. oil and gas) has not positively affected the banks within the period of oil price fall and economic recession. The study recommends the need for sectoral diversification to reduce risk of loan default and equal concentration given to profit maximization should also be given to effective and efficient liquidity management.
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HJ Public Finance